The storage tanks in Cushing, Oklahoma, are hitting bottom. The oil market is about to hit a tipping point
Cushing, Oklahoma, dubs itself the pipeline crossroads of the world. The tagline is emblazoned on a giant roadside sign fashioned out of pipes on the corner of Main Street and South Stiles Road. It has a valve and everything.
But it’s not just a slogan.
In 1912, Tom Slick (his real name) was passing through what’s now Drumright, Oklahoma, when he smelled oil. He bought the land for $1 an acre and started digging, uncovering what was then Oklahoma’s biggest oil well.
Today, neighboring Cushing is the hub of America’s energy market. It literally provides the oil plumbing for the United States. It’s where America’s benchmark West Texas Intermediate oil is priced and warehoused. From there, it’s piped to refineries around the country.
In normal times, Cushing stores around 40 million barrels of oil with capacity of up to 75 million.
These are not normal times.
Cushing’s current inventory is 21.6 million barrels, according to the US Energy Information Administration.
That’s dangerously close to operational stress levels, the tipping point at which Cushing struggles to supply all of its customers with the oil they demand.
When Cushing’s reserves get below 20 million, they effectively hit empty, scraping the bottom of the barrel of what is largely unusable sludge.
And when Cushing runs empty, strange things happen to the oil market.
Unless the Strait of Hormuz opens soon – very soon – we’re probably just weeks away from finding out what that looks like.
Cushing is running out of oil because America has become the supplier of last resort for regions of the world that typically get their oil and fuel from the Middle East. Demand for US oil surged to a record high during the Iran war, and crude has flowed out of Cushing faster than America’s oil drillers can refill it.
But it’s not just a Cushing problem.
US diesel stocks recently hit their lowest level since 2003. Gas inventories have been falling, too – about 5% below where they were a year ago. Other US commercial crude storage facilities outside of Cushing are also getting drained fast – by 7.2 million barrels last week alone. [Continue reading…]