WTI at Cushing: an update on inventory & prices
As we have highlighted for the past few months, "surplus inventory in Cushing" is probably not the primary factors that caused deep price discounts for WTI relative to virtually all other price benchmarks beginning in December 2010. As supporting evidence, we note EIA statistics in the Petroleum Supply Monthly (PSM) show inventory at Cushing declined 3 million bbl (7%) during April and May. Weekly statistics show inventory at Cushing declined by an additional 6 million bbl (16%) during June and July. Wet barrel crude traders are clearly using all available means of transportation to ship under-priced crude oil at Cushing to the Gulf Coast for resale at full market prices.
IF EIA weekly statistics are directionally correct and reasonably accurate, Cushing inventory levels are now as low as they were in October 2010 -- 3 months before WTI prices disconnected from other pricing benchmarks. We continue to suspect short selling by big money traders was the factor that sparked the WTI price disconnect.
If inventory liquidation at Cushing continues at the rates of the past 4 months, there will be no crude oil left by the end of Q1 2012.
