OPEC Monthly Oil Market Report – August 2017
Cushing crude oil inventories point to improving market
Crude oil inventories at the pricing point for WTI crude oil futures have fallen below the excessively high
levels seen since 2015. From the last week in May 2017 onwards, there has been a strong draw down of
more than 9 million barrels, which has reduced crude inventories at the pricing point of Cushing, Oklahoma,
to just below 56 mb for the first time since November 2015 (
Graph 12 – 1
), providing a positive signal
regarding market rebalancing.
Crude inventories at Cushing rose to excessively high levels in the first four months of 2015. Over that
period, stock levels almost doubled to stand at 62 mb by mid-April. Inventories remained at elevated levels
throughout 2016, dipping briefly below 58 mb toward the end of the year, but they maintained a high level.
Graph 12 - 1: Cushing weekly crude oil inventories
Among the factors contributing to the build-up in inventories in the first four months of 2015 was the strong
contango in NYMEX WTI, which provided an incentive to store oil for future sale. The spread between the
first- and third-month WTI contracts moved above $2.00/b at the start of February 2015, reaching as high as
$3.58 in weekly terms by mid-March, and remaining above $2.00/b until May. In contrast, the contango
structure in NYMEX futures has been considerably narrower in 2017. In February 2017, the spread between
the front and third month average was 86¢/b. More recently, the spread has narrowed further, averaging
34¢/b in July – below estimated monthly storage costs at Cushing – providing an additional incentive to draw
down crude inventories.
A further factor contributing to the decline in Cushing inventories has been the lifting of the ban on US crude
oil exports, which occurred at the end of 2015. In the first five months of 2017, crude oil exports out of the US
Midwest region (PADD 2) alone have averaged just under 200 tb/d, compared to 108 tb/d in the same period
Overall, US crude exports have averaged 940 tb/d over this same period, compared with 500 tb/d in the first
five months of 2015. The current year is the first in which US crude exports have risen considerably, as
exports averaged 520 tb/d in 2016. One reason may be that US crude prices have been more competitive. In
the first five months of 2017, the ICE Brent-NYMEX WTI spread has averaged around $2.80/b, compared to
$1.60/b in the same period of 2016. However, this is well below the $6.50/b spread seen during the same
period in 2015 when the US crude export ban was still in place.
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51
Sources: US Energy Information Administration and OPEC Secretariat.