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Monthly Endnotes

OPEC Monthly Oil Market Report – August 2017

87

Monthly Endnotes

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

of 2015.

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.

25

35

45

55

65

75

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

mb

Average 2012-2014

2015

2016

2017

Sources: US Energy Information Administration and OPEC Secretariat.

Week