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As Cushing fills with oil, Enterprise among first to face hiccups
February 5, 2016 / 12:03 AM / 2 years ago

As Cushing fills with oil, Enterprise among first to face hiccups

(This version of the Feb. 4 item, in 3rd paragraph corrects Cushing inventory to 64.2 million from 62.4 million)

NEW YORK (Reuters) - The unprecedented build-up of surplus crude oil supplies in Cushing, Oklahoma, is beginning to cause logistical headaches for companies moving crude between thousands of steel tanks in the nation’s most important storage hub.

Enterprise Products Partners, a large participant but relatively small operator in the Cushing market, has told at least some counterparties that it is experiencing delays in delivering crude from its tanks, according to three sources who were informed of unspecified “terminalling and pump” issues.

The sources attributed the disruptions to the unusually high level of oil collecting in Cushing, the delivery point of the CME Group’s U.S. oil futures contract. Stockpiles have risen to a record 64.2 million barrels as of last week, according to the U.S. Energy Information Administration, just 9 million barrels shy of their theoretical limit.

“It’s hard to move barrels around right now because there’s so much oil (in Cushing),” said one trader.

A company spokesman did not provide comment on the story.

The delivery delays are unusual but not severe enough to trigger contractual disputes, one source said. Oil traders routinely pump crude in and out of tanks in Cushing in order to settle futures contracts or create particular blends for refiners. Most trades are usually completed within a month’s time.

The hiccups may be a sign of things to come as traders fear a further increase in stocks at Cushing would test the upper limits of tanks and cause the next leg of an 18-month rout.

Enterprise owns just 3.3 million barrels of storage capacity in Cushing, small relative to operators like Enbridge Energy Partners with over 20 million barrels. It is not clear how much space the firm may have leased from other owners.

But traders say they remain one of the larger players in that market, and first noticed that something was awry when Enterprise began bidding to buy the Feb/March WTI cash roll earlier on Thursday, indicating that they were potentially short barrels for immediate delivery.

The cash roll, which allows traders to roll their long positions forward, traded at larger volumes at negative $1.00 a barrel on Thursday. Those deals raised questions among market participants as the roll does not actively trade outside of the three-day window after the settlement of the front-month futures contract. A few weeks ago, during the official roll period, it traded at negative $1.95 a barrel.

The problem, the sources say, appears to be related to oil volumes being so high in Cushing that there is not enough room to drain existing tanks to blend oil to West Texas Intermediate specifications.

Reporting By Catherine Ngai in New York; additional reporting by Liz Hampton in Houston; Editing by Andrew Hay

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