Inventory shortage fails to stop oil price decline, Cushing's pricing power is being weakened
- Although inventories at the US crude oil delivery hub in Cushing have fallen to their lowest level since 2014, West Texas Intermediate (WTI) prices briefly dropped below $70 a barrel on Wednesday, eventually closing at $70.34. The divergence between inventories and prices highlights the weakening status of Cushing as the benchmark for US crude oil pricing.
- According to a report from the US Energy Information Administration, Cushing crude inventories fell to about 19 million barrels last week, below the generally recognized minimum threshold of 20 million barrels needed for normal operations. When storage falls below 10% to 20% of capacity, oil extraction becomes more difficult and water quality issues may arise. In theory, critically low inventories should support oil prices, but the market has responded in the opposite direction.
- Market analysts point out that the current price decline is more a continuation of emotional sell-offs. Some funds are continuously suppressing futures prices to seek out weak support levels and prepare for profit-taking on a rebound. Although fundamentals (such as inventories and supply disruptions) should support higher oil prices, market sentiment has overwhelmed fundamental signals.
- Behind Cushing’s declining importance is a structural shift in US oil flows. Shale oil production in the Permian Basin has surged, but an increasing volume of crude is flowing directly to export terminals and refineries along the Gulf Coast, rather than through the Cushing hub. According to a senior trader, the marginal factor affecting the oil market has now shifted to export capacity on the Gulf Coast.
- Looking ahead, analysts anticipate that US oil exports will slow next month, with more crude returning to Cushing. Energy consultancy Energy Aspects estimates that Cushing inventories will increase by about 800,000 barrels next week. As shipping through the Strait of Hormuz gradually recovers, increased global supply may further suppress oil prices, and the marginal impact of Cushing inventories is likely to continue to weaken.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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