Cushing cushion drop

The American Petroleum Institutes reported another big drop in Cushing supply while oil (NYMEX:CLN14) supply in the U.S. is rising overall. Crude inventories rose by 3.5 million barrels in the week of May 23 to 383.9 million, yet crude stocks at the Cushing, Okla.,, delivery hub fell by 1.5 million barrel. It seems that the WTI is getting disconnected with the reality that U.S. oil supply is overwhelming except perhaps in Oklahoma. In a historic shift, supply of oil is going down to the Gulf Coast while Cushing the NYMEX delivery point is being sucked dry. Shale oil that is lighter than WTI is redefining the market and may lead to a change in how the world views the supply situation in the US. We are also seeing the WTI Price tower over Gulf Coast spot making WTI perhaps less relevant.

As for gasoline (NYMEX:RBN14) it appears that demand was very strong as the API reported that gasoline stocks fell by 1.4 million barrels. A lot of gas went on the rack to meet strong Memorial Day weekend demand. Distillate fuels stockpiles, which include diesel and heating oil, increased by 821,000 barrels. U.S. crude imports rebounded by 1.5 million barrels per day to 8.2 million bpd reversing last week's surprising drop. The disconnect on imports may be a sign that The US is getting ready to "re-export" Canadian crude.

The growing supply of shale oil is also making the case for the US to lift the ban on U.S. crude oil exports. It was reported by Seeking Alpha that the energy research group IHS has released a report stating the benefits of U.S. oil exports. They include an added domestic investment of $750 billion, fuel prices lowered by 8 cents a gall-on, and an added 394,000 jobs. Not only would that, it would allow for a more active "swaps market" freeing up bottlenecks that have kept priced artificially high.

Speaking of bottlenecks, let's talk natural gas (NYMEX:NGN14). A market that needs record production is being hampered by the lack of pipeline capacity. Even if producers want to ramp-up production it does not make sense if they can't move it into a pipeline.

On top of that at a time when producers need to produce a record amount of gas they may have to cut back because prices are too low. Bloomberg News reports that the U.S. shale patch is facing a shakeout as drillers struggle to keep pace with the relentless spending needed to get oil and gas out of the ground. Shale debt has almost doubled over the last four years while revenue has gained just 5.6 percent, according to a Bloomberg News analysis of 61 shale drillers. A dozen of those wildcatters are spending at least 10 percent of their sales on interest compared with Exxon Mobil Corp.'s 0.1 percent. "The list of companies that are financially stressed is considerable," said Benjamin Dell, managing partner of Kimmeridge Energy, a New York-based alternative asset manager focused on energy. "Not everyone is going to survive. We've seen it before." A Must Read!

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