Crude Summit: Cushing may fill up again - Lipow

OREANDA-NEWS. Inventories in Cushing, Oklahoma, could fill up as a result of new pipeline capacity, sending the Brent-West Texas Intermediate (WTI) spread out wide again, said Lipow Oil Associates president Andy Lipow.

"It's deja vu all over again and it looks like it's happening," Lipow said today at the Argus Crude Summit in Houston. "Cushing could physically once again get overwhelmed if production continues to rise and rise quickly."

Cushing inventories hit an all-time high of 51.9mn bl in January of 2013, as US crude production surged, leading to a large disconnect between WTI and Brent. The start up of the 700,000 b/d Gulf Coast pipeline to the Nederland, Texas, area helped relieve that Cushing bottleneck.

Lipow counts at least 22 inbound pipes to Cushing totaling 3.9mn b/d in capacity, with only two new pipelines announced to move oil out of Cushing: the 450,000 b/d Seaway pipeline and Plains All American's 200,000 b/d Diamond pipeline to Memphis, Tennessee.

Oil will be backed up into the Rocky Mountains and North Dakota, where rail facilities will send crude to the east and Gulf coasts, Lipow said. The Gulf coast could also fill up and move into a deep contango as Cushing stocks are sent south to Texas and Louisiana.

Plains All American chief executive Greg Armstrong said today that rising inventories in Cushing could result in volatile spreads that make rail viable again.

The problem could also be solved by reversing Capline to flow crude south from Patoka, Illinois, to St James, Louisiana, Lipow said.