Crude flirts with bears, again

Genscape nails it

Genscape hit the Cushing, Okla., builds on the head as crude oil flirts once again with bear market territory. The API confirmed the Genscape Cushing build--at least as reported by the American Petroleum Institute--as they reported the 3 million barrel increase at the Cushing delivery point was accurate.

At the same time, in a "special report" Genscape seemed to downplay the fears that the Cushing delivery point will soon be overflowing with supply. Genscape says that that while inventories are at a record high, they point out that significant tank storage capacity has been added to the Cushing storage terminal since the previously high stock levels in April 2013.

Genscape says that "total shell capacity has increased by 31.6 million barrels since 2009, when Genscape started monitoring storage at Cushing--that's a total storage capacity increase of 38%. Throughout Cushing history, capacity utilization has never exceeded 80%. Given today's total capacity and the same utilization rate, if achievable, Cushing maximum storage levels would equate to approximately 66 million barrels. So whole it is expected that the build at Cushing will continue for several more weeks, as long as the economic incentives to store crude at Cushing remain in the WTI price structure.

But, Genscape asks "for how much longer and at what rates can these builds continue?" Cushing inventories have shown consistent weekly builds since early December 2014 with an average weekly fill rate of nearly 1.8 million per week, according to Genscape data. As the 12-month WTI contango widened, the weekly fill rate also accelerated to near 2.3 million barrels per week over the last four weeks, including a record high increase in storage at nearly 4 million barrels for the week ending February 13. Assuming a 2 million per week inventory build, Cushing will reach 80% capacity utilization by late April. Considering that maximum capacity utilization may be higher than 80 given the type of storage space still available and the availability of storage space is declining, this weekly fill rate is likely to decrease.

Overall, the crude oil build, reported by API, was a whopping 10.5 million barrel build. That number may have been inflated because of problems in the Houston shipping channel. Fog and the tanker collision shut down the channel. Gasoline on the other hand was supportive with a draw of 583,000 barrels. The drop came after a refinery glitch in Romeoville, Illinois that gave the Chicago gas markets a ride. Distillate inventories also fell 252,000 as well, even as refinery runs rose 0.2% to 87.75. Refiners better get to work. 

About the Author

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor.