Oil Storage

[dan_s]

Cushing hits record utilization. While the pace of Cushing crude inventory builds has slowed from +2MMbls in Jan-Feb to current ~1MMbls, inventories continue to build. With the 12-month WTI spread exceeding ~$7/bbl (steep Contango) in 1Q15, the economic incentive for storing crude at Cushing is strong. As per last week's DOE data, Cushing inventory levels that had dropped to 19.9MMBls in late-July 2014 are currently at ~61.5MMbbls (up ~30MMbls YTD). According to Genscape's mid-week Cushing storage report, crude inventories rose by another 1MMbls between April 10, 2015 and April 14, 2015, pushing capacity utilization to ~80%. This is the highest capacity utilization measured at the storage hub since 2011. This is despite the fact that since 2011, nearly 27Mmbls of storage capacity has been added at Cushing and 1.5MMbls of take -away capacity has been built. According to our sources, the top 5 operators at the Cushing tank farm are now above 80% utilization and only have 9.8MMbls of remaining capacity. Given the connectivity to the GC, we expect Houston, Beaumont and Nederland could be the next place to feel the storage squeeze. With the ramp in refining runs, we believe a rise in crude imports could be the next surprise.

PAA owns a lot of storage tanks at Cushing, so they are loving this. - Dan