Houston is quickly becoming the new benchmark for oil, while Cushing is losing its relevance to the industry.
Cushing wasn’t just relevant to the industry for storage purposes, but also for sector-wide data purposes. According to Reuters, it “got its distinction in the early 1920s when tanks sprung up to store oil en route from Oklahoma and Texas to major metropolitan areas and refineries in the Midwest. In 1983, it became the delivery point for the newly-launched WTI futures contract CLc1.”
For years, Cushing oil inventories were a staple for any business, trader or entity that dealt in the commodity, not to mention those who actively traded it on a daily basis. Cushing inventories were once the key indicator the supply of crude oil held in the United States. These are the Cushing storage tanks in Cushing, OK:
Decades ago, Cushing was seen as a fairly easy way to measure oil supply because the United States was not exporting any oil, but rather only importing it. This made it a novel and effective idea to have one major storage point to reference when trying to help gauge the amount of supply the United States had, which could quickly be used by traders and those in the industry to help with price discovery on oil futures contracts.
Just as the trading market for oil futures has evolved, replacing open outcry with computers, so has the efficiency and method with which we collect oil inventory data. Cushing seems to be “slowly going the way of the buffalo“ while focus turns further south. Reuters about Cushing’s storage this morning:
But those tanks could soon drain to levels near effectively empty, even as U.S. oil production soars past a new record of 10.4 million barrels per day.
Oil supplies have fallen before in Cushing for a variety of seasonal or market-driven reasons. But this time, there is no shortage of crude in the market. In fact, U.S. production is straining pipeline and storage capacity.
The declining volumes stored at Cushing reflects a more permanent shift, underscoring the hub’s waning influence as the primary measuring stick for the U.S. oil market and the leading barometer of future supply, demand and prices.