April 7, 2015 / 11:04 AM / 2 years ago

RPT-Surprise pause in Cushing oil stock rise likely blip, not trend

(Repeats article that originally apeared on April 6, no changes to headline or text)

By Catherine Ngai

NEW YORK, April 6 (Reuters) - An unexpectedly tiny rise in crude oil stocks at Cushing, Oklahoma, last week was likely a one-off interruption in the unprecedented build in U.S. inventories, traders said, not a reversal.

On Monday, energy information group Genscape said its data showed Cushing stocks rose by only 169,000 barrels in the week to April 3. Oil futures jumped nearly $3 a barrel on surprise that the build was so much less than the average weekly build of 2 million barrels in recent months at the U.S. storage hub. Cushing last had a draw in the final week of November, and this was the smallest weekly build since then.

Oil futures jumped as market players saw a chance that a draw was looming at Cushing this week. But in the physical market, traders and other sources said they expected a large build. Citing industry reports of pipeline flows and refinery work, they said it looked like Cushing's hundreds of oil tanks remained on track to fill to the brim by the first week of May.

This week's Genscape report was "very bullish for crude," said one trading source. "But I think builds should be massive next week."

One factor that may help explain the small build was a dip in volumes on Tallgrass Energy Partners LP's Pony Express pipeline. But shipments have risen sharply since Wednesday afternoon.

This week, stocks may be inflated by the multi-day stoppage on both halves of the 850,000 bpd Seaway pipeline system from Cushing to the Gulf Coast. These were shut on April 3, the cut-off for the weekly stockpiles report by the U.S. Energy Information Administration, due on Wednesday.

Looking further ahead, Phillips 66 has scheduled up to two weeks of unexpected maintenance at its 247,000 bpd refinery in Sweeny, Texas. This will reduce local demand for Permian Basin crude that will now either be pumped to Cushing or shipped to Gulf Coast refiners.

The oil market is closely watching reports by Genscape, which uses infrared cameras and helicopter fly-bys to estimate Cushing inventories days before the EIA report. With global supply vastly exceeding demand, traders are looking for clues about when Cushing will reach its limit.

In recent months, oil traders have tried to play the market "contango" by buying deeply discounted crude now in hopes of selling it later at a higher price. That action has caused Cushing crude stocks to swell more than 80 percent in the first three months of the year. The discount in the near months has narrowed, but is still appealing for many traders.

Cushing inventories were on track to reach their theoretical limit in a little less than two months. Last week, EIA data showed Cushing stocks at a record 58.9 million barrels.

Even though futures prices jumped on the small build, some traders said they expected Cushing stocks to keep building until it becomes economical to send crude to the U.S. Gulf Coast instead. On Monday, WTI crude into East Houston was trading around $5 a barrel more than in Cushing, making up for the estimated $2-4/bbl cost of shipping it south.

With refinery maintenance season ending and summer driving season beginning, many agree that a draw from Cushing may come soon. But determining when is not easy.

With no evidence of a slowdown in U.S. oil output or a major increase in demand, "I'm not convinced we've seen Cushing topped off," said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut. "I think we'll continue to see oil move into storage."

Here are several factors traders cited for a likely further rise in Cushing stockpiles:

* Increased flows on the Tallgrass Pony Express pipeline. Genscape reported that the line, which pushes crude from Wyoming to Oklahoma, averaged 158,000 barrels per day (bpd) last week. Since Wednesday afternoon, it has been pumping nearly 230,000 bpd.

* TransCanada Corp 's Keystone North pipeline, bringing crude from Hardisty, Alberta to Steele City, Nebraska, with further connections toward Cushing, resumed its flow to nearly a maximum of 590,000 bpd on Thursday, Genscape data showed. It was shut on Wednesday and averaged 566,000 bpd in the week.

* Enbridge Inc and Enterprise Product Partners' Seaway pipeline, moving crude from Cushing to Freeport, Texas, was shut Friday afternoon and resumed flow to nearly 352,000 bpd 24 hours later, Genscape reported.

* Enbridge and Enterprise's Seaway Twin pipeline, which twins the original Seaway, resumed flow to some 369,000 bpd on Monday after being shut for nearly 3 days, Genscape reported.

* Phillips 66 will shut its larger sour crude distillation unit and several secondary units at its 247,000 bpd Sweeny, Texas, refinery for about two weeks of minor maintenance (Reporting By Catherine Ngai, editing by Jonathan Leff and David Gregorio)

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