Analysis: Growing complexity at Cushing boosts chance of oil market jolts

Tue Oct 15, 2013 5:19pm EDT
 
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By Sabina Zawadzki

NEW YORK (Reuters) - When a train laden with crude oil rolled into the sleepy town of Stroud, Oklahoma, one night this August, global oil markets reacted immediately.

The unexpected arrival of some 70,000 barrels of crude -- a pittance in global terms -- caused the premium of international benchmark Brent oil futures to its U.S. counterpart to widen by a dollar in an hour.

It was a stark illustration of how finely tuned oil traders are to the ebb and flow of oil through Cushing, the world's biggest storage hub and delivery point for U.S. crude futures, known as West Texas Intermediate (WTI) by the industry.

While it has always been critical for traders given its role as the delivery point, the focus on Cushing has rarely been greater after an unprecedented three-month drawdown in stockpiles that fueled talk of squeezes on immediate supplies and fears that oil in storage could be drawn to minimal levels.

As that decline is showing signs of slowing down or reversing, market players and analysts are even more focused on how much oil is stored at Cushing at any given moment. More importantly, they want to know how much of that oil is light sweet that can be delivered against New York's futures contract.

A shortage of WTI and others oil grades deliverable against the contract can boost prices as the front-month nears expiry as players face being taken to delivery on their positions.

Yet calculating how much light sweet oil is stored in Cushing has rarely been more difficult to measure, despite the advent of companies using satellites and infra-red cameras to beat government reports.

The boom in U.S. and Canadian oil production and the race to build out transport options to get it to markets, first to Cushing and then later to the Gulf Coast refining center, has created a tangle of variables to track.   Continued...