Current Weather
The Spy FM

Cushing’s Oil Glut Affects Markets Worldwide

Filed by KOSU News in Business, Local News, News.
September 26, 2011
 

Click here to download audio

Hoarding is in fashion in Cushing, Oklahoma. Mike Cantrell, president of Domestic Energy Producer’s Alliance, says the hub of oil storage in North America has an oil problem.

D.E.P.A. represents thousands of small time oil producers, many right here in Oklahoma. They know the leader in storage of the gooey goodness is overflowing. It’s coming from Montana and Texas, and could soon flow from Canada.

“To us in the oil and gas business, Cushing is the mecca,” said Cantrell.

“Because that’s where everyone has to get their oil, and that’s become a problem.”

In New York, oil traders at the Mercantile Exchange need a benchmark. With capacity for more than 50 million barrels of crude, Cushing fills that role. Full tanks mean future prices are higher than current ones.

Emptying tanks? Refine and get it to gas stations before values fall even farther. Traditionally, Cushing’s price, known as the West Texas Intermediate benchmark, trades 3 or 4 dollars higher than the other standard, called Brent. Lately though, Cushing’s been coming in 20 dollars lower.

“Producers are hurt by it and so if you’re selling your oil at the Cushing price instead of 10 or 15 or 20 dollars international price higher, producers suffer,” said head of the National Energy Policy Institute, Brad Carson.

Like Cantrell, and just about anybody in the business, Carson watches Cushing. What he sees is a problem without a short term solution. Pipelines are contracted to send oil to Cushing, not the other way around. There’s only a handful that flow out to refineries, if they even get used. Conoco Phillips, Shell and others would rather make more money by putting oil away.

“They see there’s a market for that. A market for the oil coming in, also a market driven by the fact that for lots of people, storing oil is an economic decision right now,” said Carson.

“They can play the futures curve and store oil and sell it into the future.”

Storage companies have started to build more tanks to accommodate the oil giants. Reports put capacity going to 65 million barrels in the next couple months. But the most talked about solution to the problem takes time.

“Building a pipeline is a difficult thing to do. From a regulatory standpoint, from a right of way, from an economic standpoint it’s very expensive. It’s hard to know what will happen,” said Carson.

“To the extent that this differential in price between the world markets and Cushing persists, I think you’ll see an aggressive move for these types of pipelines.”

Even if those pipelines are built, companies may hold out, said Carson.

“There’s a lot of money to be made there. While it will cost you some money to transport it you would still make a lot per barrel if there’s a 20 dollar difference.”

Still, John Selmy of the American Petroleum Institute, a Washington based trade group representing oil corporations, said no one’s breaking the law.

“The market outcome is the best thing that could happen, and that’s what we’re having right now. It depends on whether you’re a buyer of crude oil or a seller of crude oil on whether or not you want the price to be higher or lower.”

Last month, Citi’s Commodities group predicted the spread between Brent and Cushing could go high as forty dollars next year. Companies may hold out, then buy the oil at the lower price, ship it to their refinery, clean it up, and what’s left would be pure profit. It’s nearly been a necessity in the oil world to get your product to Cushing. Now, it might just be a way to make more money.

Tuesday, KOSU looks at how a lower oil price at Cushing has cost the state of Oklahoma millions of dollars in tax revenue.

Follow Ben Allen on Twitter: @BenAllenKOSU.

Leave a Reply

5AM to 9AM Morning Edition

Morning Edition

For more than two decades, NPR's Morning Edition has prepared listeners for the day ahead with two hours of up-to-the-minute news, background analysis, commentary, and coverage of arts and sports.

Listen Live Now!

9AM to 10AM The Takeaway

The Takeaway

A fresh alternative in morning news, "The Takeaway" provides a breadth and depth of world, national and regional news coverage that is unprecedented in public media.

View the program guide!

10AM to 11PM On Point

On Point

On Point unites distinct and provocative voices with passionate discussion as it confronts the stories that are at the center of what is important in the world today. Leaving no perspective unchallenged, On Point digs past the surface and into the core of a subject, exposing each of its real world implications.

View the program guide!

Upcoming Events in your area (Submit your event today!)

Streaming audio and podcasts

Stream KOSU on your smartphone

Phone Streaming

SmartPhone listening options on this page are intended for many iPhones, Blackberries, etc. with low-cost software applications available to listen to our full-time web streams, both News on KOSU-1 and Classical on KOSU-2.

Learn more about our complete range of streaming services

We're perfecting the patient experience - Stillwater Medical Center