Low Oil Stocks at Cushing, Okla. Have Outsized Influence on Near-Term Crude Prices

Cushing, Oklahoma, a small town with a population of around 10,000, plays an outsized role in the global crude oil market. Known as the "Pipeline Crossroads of the World," Cushing serves as the delivery point for West Texas Intermediate (WTI), the U.S. crude oil benchmark, and is home to the largest crude oil storage hub in the country. The storage hub's inventory levels and capacity utilization have a significant impact on near-term crude prices, as they influence the balance between supply and demand in the U.S. and global markets.



Cushing's influence on crude prices is amplified by its limited storage capacity. With a working storage capacity of around 70.8 million barrels, representing more than 60% of all crude oil working storage capacity in the Midwest and about 19% of all commercial crude oil storage in the United States, Cushing's inventory levels can quickly reach capacity, putting upward pressure on prices. Conversely, when inventory levels are low, there is less room for additional supply, which can put downward pressure on prices.

Pipeline capacity changes also play a significant role in Cushing's influence on crude prices. As pipeline capacity to move crude oil south from Cushing to the Gulf Coast has increased, it has become easier to transport crude oil out of Cushing, reducing the risk of storage capacity utilization reaching record highs. This increased pipeline capacity allows crude oil producers to more easily access storage capacity at Cushing, providing a buffer against price fluctuations. However, if pipeline capacity is disrupted or reduced, it can lead to a buildup of crude oil at Cushing, putting upward pressure on prices.

Geopolitical events and supply disruptions can also impact Cushing's inventory levels and crude prices. For example, during the COVID-19 pandemic, global demand for crude oil plummeted, leading to a significant increase in Cushing's inventory levels. In April 2020, Cushing's crude oil inventory reached a record high of 64.1 million barrels, with storage utilization reaching 77% (EIA, 2020). This surge in inventory levels was primarily due to a decrease in demand and a temporary halt in production, which led to a significant drop in crude oil prices. The WTI crude oil price even turned negative for the first time in history on April 20, 2020, as producers struggled to find storage space for their excess supply (EIA, 2020).

In conclusion, low oil stocks at Cushing, Oklahoma, have an outsized influence on near-term crude prices due to the storage hub's limited capacity, the impact of pipeline capacity changes, and the influence of geopolitical events and supply disruptions. As the delivery point for WTI and the largest crude oil storage hub in the country, Cushing's inventory levels and capacity utilization play a crucial role in balancing supply and demand in the U.S. and global markets. Investors and market participants should closely monitor Cushing's inventory levels and capacity utilization to gain insights into near-term crude price movements and make informed trading decisions.