NEW YORK (Reuters) - Oil filling tanks at the U.S. storage hub of Cushing, Oklahoma, hit record levels last week, sending crude futures tumbling more than 3 percent as the ever-swelling supply glut deepened the year-long rout in prices.
Crude oil stockpiles at Cushing, delivery point of the NYMEX U.S. futures contract rose 892,000 barrels to 62.9 million barrels last week, data from the U.S. Energy Information Administration showed.
The eighth straight weekly rise pushed inventories at Cushing past the previous record of 62.2 million barrels in April. Total U.S. inventories rose unexpectedly, underscoring worries about weak distillate demand during the warm holiday week while imports and domestic stocks grew.
With only 10 million barrels of working storage left at the main U.S. storage hub and about 20 million in shell capacity, some traders have warned that space is running low. Many are growing more concerned about how the United States will whittle down inventory that has stayed high even as prices slumped 70 percent over the past 18 months.
Enbridge Inc’s closure on Tuesday of part of its Ozark pipeline, which runs from Cushing to Wood River in southern Illinois, fueled those worries.
The front-month U.S. crude futures benchmark extended losses on news of the unusual year-end build in supplies, diving more than 3 percent and teetering close to seven-year lows. Prices settled down $1.27, or 3.4 percent, at $36.60. [O/R]
Still some traders were surprised at the muted response by prices further along the curve. The premium for WTI March over February did widen to $1.09 from 99 cents on Tuesday. But that move was more limited than the sudden, dramatic flaring out of spreads earlier in the year.
In March and April, as stocks in Cushing approached the previous high, the front to second month WTI spread, or contango as the price structure is known, widened to as much as $2.49 a barrel, its most since early 2011.
This time, the relative lack of alarm may be due to a combination of expected draws in Cushing in January as more crude is pushed to the U.S. Gulf Coast where differentials are more favorable. Traders also expect the ending of the decades-old ban on exports may help erode the domestic glut.
Better differentials in Texas could encourage traders to bypass Cushing and move Canadian heavy crude south to Houston instead, analysts said. Material may also shift to the Gulf once maneuvering over year-end tax and accounting is over.
The resilience in prices was also apparent in the opaque cash market. Last week, the “cash roll” for Jan/Feb WTI, allowing a trader to roll a long position into the next month, traded around negative 50 cents a barrel, the smallest spread since October.
A negative roll will occur when prices are in contango, which incentivizes storage. Last month, in anticipation of a large build in crude stocks during December, the cash roll traded at as low as negative $2.50 a barrel.
Others said the recent lifting of the decades-old export ban has already prompted the world’s largest trader Vitol SA to start exporting crude, possibly encouraging others and helping ease the glut, even as Brent futures remain at a premium over domestic prices.
“If we are going to get out there and start selling U.S. crude now that the export ban is lifted, we’re going to help drain out the supply that’s in storage in Cushing,” said Carl Larry, an analyst with Frost & Sullivan.
Still, some traders warned that with refinery turnarounds in the first quarter, WTI spreads could weaken, especially as Brent trading over WTI attracts more imports.
Reporting By Catherine Ngai; Editing by David Gregorio