Crude oil inventories at the Cushing storage hub in Oklahoma are approaching the high levels seen in April when limited storage capacity amid crashing demand contributed to the plunge in WTI Crude prices into negative territory. Cushing is the designated delivery point for NYMEX crude oil futures contracts, and rapidly dwindling spare capacity there spooked the oil market at the end of April and early May.
Commercial stocks at Cushing rose to 61.6 million barrels in the week to November 13, according to the latest data from the weekly petroleum report of the Energy Information Administration (EIA). That’s up from 60.4 million barrels in stocks at the hub at the end of the previous week, and a 39.3-percent jump compared to the same week in 2019 when inventories at Cushing stood at 44.2 million barrels.
The current stockpile at Cushing means that the hub is full to around 81 percent of its capacity of 76 million barrels, according to Bloomberg’s estimates.
To compare, in the first week of May at the peak Cushing inventories this year, commercial crude oil inventories at the site exceeded 65 million barrels, which was 83 percent of the site’s working capacity, according to EIA data. Between early May and the last week of June, crude oil inventories at the storage hub had decreased to 45.6 million barrels, but they started rising again in July, weekly data from the EIA shows.
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Analysts do not expect a repeat of the April negative price of oil because trading and clearing houses put limits to retail traders’ bets after the crash, while exchange traded funds (ETFs) of oil spread the risks by limiting the piling of contracts into front-month months.
Even without a new slump in prices because of storage limits, the near-term prospects for oil demand in the United States are not rosy as some states return to re-imposing restrictions and curfews as COVID-19 cases soar.
By Tsvetana Paraskova for Oilprice.com
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The US economy shrank by 32.9% in the second quarter of 2020 and is continuing to contract. This means that US crude oil demand is far below the average in normal circumstances, hence the rise in Cushing oil inventories.
The soon-to-be-available anti-COVID vaccines will be a great shot in the arm for both the global economy and the global oil market. We witnessed the rise of oil prices by almost 13% the minute results of these vaccines were announced. Once vaccination starts around the world from December onward and global lockdown is eased, we will see an acceleration of global oil demand and a surge in oil prices accompanied by a fast depletion of global oil inventories.
In such a situation, Brent crude oil prices could be expected to hit $45-$50 a barrel before the end of 2020 and surge to $60 in early 2021.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London