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Storage Shortage Causes Cushing Blockage

Copyright © 2021 Energy Intelligence Group

US crude oil producers are paying buyers up to $40 per barrel to take their crude away. The US is so full of crude oil that the main crude system around the nation’s oil trading hub in Cushing, Oklahoma, is blocked. For the first time in memory, US West Texas Intermediate (WTI) oil futures were trading in negative territory on the New York Mercantile Exchange (Nymex) on Monday, and US crude for May delivery lost $55.90 over the course of the trading day to close at negative $37.63/bbl (related). One insider said the drastic drop was in part the result of the forced liquidation of a position in the futures market “at any price.” The contract has one more day to trade as it expires Apr. 21. The May contract had an exceptionally high open interest of 109,000 contracts at the start of Monday trading. But fundamentally, the price reflects extremely distressed crude cargoes that are stranded with refineries ramping down runs, as they cannot sell products in a market where demand has collapsed from consumers who are staying home to prevent the spread of the Covid-19 pandemic (related). The steep negative price “means storage is full,” said Albert Helmig, CEO of consultancy Grey House and former vice president of the Nymex. Cushing is the delivery and pricing point of US oil futures and has an operational capacity of some 70 million barrels of oil. It held 55 million bbl last week. The negative price allows for trucks to come pick up crude and relieve the system, if needed -- and are a stark warning sign for cavalier US producers to rein in their production quickly. Analysts note that WTI in Cushing is a benchmark because it is liquid and is built to prevent shocks, not create them. But it shows that the impact of the Covid-19 shutdown can overwhelm even the US’ key crude network. Other storage facilities are filling up fast as well and US crude exports are drying up, shipping fixtures show. In areas where the flow of crude is still more or less free, prices can still be much higher, and the hope is that time will create more space. US crude for June delivery at Cushing is still trading in positive territory at around $20/bbl. On Monday, players were quickly rolling out of that contract into later months to avoid a repeat of the meltdown preceding the May contract expiry. But US refineries continue cutting runs -- at last count they were down 3.5 million b/d -- signaling that US crude flows need to adapt faster. US crude production has likely already fallen by more than 1 million b/d to less than 12 million b/d, with much of that oil from shale plays. The balance is moving into storage. Last week alone, US crude inventories added 19 million bbl, of which 5 million bbl were stored in Cushing. Canadian producers are also struggling, with their national benchmark, West Canadian Select, reportedly trading in negative territory as well on Monday (OD Apr.21'20). John van Schaik, New York

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