Wednesday, April 27, 2011

Oil: "Bye, bye Cushing syndrome (possibly)" USO

The futures are trading hands at $112.17, down four cents.

A few years ago if I had been asked who is the best journalist writing on the oil biz, I'd have answered "Dow Jones' Ann Davis".

Her 2007 piece "Where Has All The Oil Gone?", about Cushing was as good a look at storage and trading of the physical as I've seen in a general interest publication. Some of her other stories included a story on Amaranth that won UCLA's Gerald M. Loeb Award for deadline writing.

Today however, if asked the same question, I'd answer FT Alphaville's Izabella Kaminska.
When I saw her "Cushing" headline I did a quick search of Climateer for "Cushing" and was dumbfounded by how many times her byline came up in stories that we linked. Here's the latest, from FT Alphaville:
By now, anyone following oil markets will be familiar with Cushing syndrome. The one-way flow problem which affects the Cushing delivery point for Nymex WTI futures in Oklahoma preventing oil that’s gathered there to travel to alternative domestic or sea-borne markets where demand is higher.
The dynamics have resulted in an almost permanent discount of WTI crude to sea-borne Brent crude for nearly a year now.
But possibly not for much longer.
As JBC Energy reports on Wednesday:
Turning to Cushing Oklahoma, the delivery point of the Nymex WTI futures contract, pipeline firms Enterprise Product Partners and Energy Transfer Partners have teamed up to build a pipeline system that will carry crude from landlocked storage in Oklahoma to refineries on the US Gulf Coast. The system should be finished by 2012 and include a 400,000 b/d pipeline from Cushing to Houston as well as 500,000 barrels of additional storage capacity at the ending point of the pipeline.
The glut of crude at Cushing has brought benchmark WTI to record discounts to rival Brent. A fast-track construction of a 400,000 b/d pipeline would substantially ease the pressure on WTI, way ahead of current market consensus of about 2-3 years (based on Magellan, Keystone XL). However, it will be interesting to see how much resistance the two companies will face in the approval process, given strong interest of some market participants to extend the current situation.
Of course, pipelines are not the only way to get landlocked crude out of Cushing.....MORE
One of the Journal links takes a look at storage and super-trader Vitol in "'Speculator' in Oil Market Is Key Player in Real Sector".
The next day Alphaville had Vitol's response: "Vitol ‘not in the business of speculation’".

Damn straight. They look to guarantee a profit before they make the trade.
($195 Billion in revenues last year)

This post by Ms. Kaminska is from 2008: "Oil: 'It’s all about Cushing"
Another, from 2009, spotlighted a rather remarkable trade: "Oil: Record Inventories at Cushing. And: Oil Traders Seek Another 10 Tankers for Storage".

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