Oil inventories reaching nearly a one-year high in Cushing

Inventories at the Cushing hub in Oklahoma have reached nearly a one-year high and to some, there will be more oil flowing into the delivery point for U.S. crude futures.

That’s because the Sunrise oil pipeline system in West Texas was finished sooner than expected and the oil is flowing from the Permian to Cushing.

Sunrise is the new line constructed by Plains All american company and the oil flowing through the line helped Cushing stockpiles hit 38.2 million barrels last week. Reuters reported that’s the highest level since January 2018.

Before the most recent week, overall U.S. stockpiles increased for 10 straight weeks, fueling worries about a glut as oil prices have sagged.

Front-month U.S. crude for delivery in January traded as much as 25 cents per barrel lower than the second month last week, the biggest discount since November 2017. Trading in the spread typically reflects supply and demand at Cushing.

Sunrise is sending oil directly to the hub as well as serving nearby refineries which rely less on Cushing.

“We knew the startup of the line would have an impact, just how big was the question. And now it looks like the builds will keep coming into the new year,” one trader said.

Both Phillips 66’s 146,000-barrel-per-day (bpd) Borger, Texas plant and Valero’s 90,000-bpd Ardmore, Oklahoma, facility, are sourcing more crude from west Texas, traders and analysts said. Overall, about 620,000 bpd flowed from the Permian to Cushing in November 2018, compared with about 480,000 bpd a year earlier, according to Genscape data.

The new Sunrise system currently moves about 300,000-350,000 bpd, of which about 120,000 bpd flows into Cushing while 100,000 goes to Valero’s Midwest refineries.

Phillips 66 declined to comment. Valero did not respond to a request for comment, though it noted on an earnings call in October that the startup of Sunrise will provide access to discounted Permian crude and be “a significant uplift” for the company.

Permian production has surged to a record 3.7 million bpd, helping boost overall U.S. output to 11.7 million bpd, making the United States the biggest oil producer worldwide. That growth had for a time depressed Permian prices, which hit a low of nearly $18 below U.S. futures, though that discount has narrowed to $8.50.

Traders also expect increases in Cushing stocks through year-end as Gulf refiners typically look to maximize stockpiles in Cushing because Texas charges a tax to keep those inventories on facility.

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