Cushing, the home of the ‘black gold rush’ and the world’s largest onshore oil storage hub is once again reducing its oil stockpiles as an increase in demand looks set to continue into 2021.
In November, reports suggested that oil was once again being stockpiled in Cushing, Oklahoma. Commercial stocks increased to 61.1 million barrels in mid-November, once again reaching April levels; when oil was experiencing its lowest demand. This figure stood at over 1 million more than the previous week and 39.3 percent higher than the same week in 2019.
However, by the end of November the outlook was brighter as demand started to increase. Stocks dropped to around 60 million barrels, once again heading towards normal levels. This reflects the gradual strengthening of the market to the pre-Covid period, as optimism around the vaccine and the new year drive demand up.
Cushing is the gateway between Oklahoma and Texas, a major oil route. Yet it has suffered a tough year, as West Texas Intermediate (WTI) light sweet crude oil futures fell below zero in April this year. However, Paul Horsnell, head of commodities research at Standard Chartered in London highlights the resilience of Cushing in the face of a global energy crisis, “The markets were under extreme stress, and prices and demand were falling very rapidly. The numbers in Cushing did look pretty horrible — but Cushing did not fail.”.
As a major pipeline crossroads in the U.S. oil region, storage facilities and pipelines in the town of just 7000 residents take up hundreds of acres. The industry in this area is dominated by just a handful of billion-dollar energy companies. For this reason, Cushing varies from oil-price predictors in the stock market, betting on the futures of its physical oil stockpile, to export across the globe.
Finally, companies are regaining their interest in longer futures contracts for the first time since the beginning of the year. In late November, West Texas Intermediate settled its December 2021 contract at a premium to futures in December 2022.
It seems this eagerness to reinvest in Cushing is paying off as WTI crude futures have risen from $41.74 to $49.02 a barrel between 18th November and 18th December. In terms of export figures, European refiners have imported the company’s crude at a rate above 400,000 bpd since the beginning of the year. This could be made even more interesting by the proposed inclusion of WTI as part of the Brent “Benchmark”.
In general, the U.S. is starting to see greater stimulus in its energy sector, as oil prices hit a 9-month high this month. As well as WTI, Brent Crude has profited from this increase in demand, up from $44.2 to $52.2 a barrel in the last month.
Demand for imports are picking up, particularly from China and India, as Asia’s energy sector appears to be recovering rapidly following the Pandemic. Further restrictions across North America and Europe mean uncertainty around demand. However, experts are hopeful for a continued increase in oil demand going into the new year.
A sector that was hit hard in 2020, with Cushing at the centre of the controversy, is slowly starting to recover. With demand for oil increasing and price per barrel gradually rising, U.S. energy majors are looking confident, with Cushing back at centre stage.
By Felicity Bradstock for Oilprice.com
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