Plans to increase tank storage capacity at the Cushing hub in Oklahoma, US, by 27% could put an end to the longest contango period in the country.
Since November 2008 oil stored in Cushing has more than doubled. Companies have announced plans to build about 14 million barrels of tanks by the end of 2011. That would boost capacity as by over a quarter, based on an estimated 51 million to 52 million of existing storage according to Bob Levin, a managing director at CME Group, owner of Nymex.
West Texas Intermediate oil for delivery next month traded at $1.86 (1.35) a barrel less than the six-month contract on the New York Mercantile Exchange on 10 November, compared with $9.88 a barrel in May. The contango, in which prompt oil is cheaper than later delivery, has averaged $2.70 during the past five years.
Oil supplies at Cushing were 31.8 million barrels as of 5 November, according to the Energy Department, down from a record high 37.9 million in May. Most companies assume operational capacity is about 80% of total capacity. Operational capacity is less because some oils cant be mixed and pipeline shipments require extra tank space.
Plains All American Pipeline has announced projects adding about 5.4 million barrels in Cushing. The Gavilon Group said in June it plans to build 4 million barrels of tanks by Q3 2011. Magellan Midstream Partners, which acquired 7.8 million barrels of Cushing storage from BP Plc in July, said in September its building another 4.25 million barrels of storage by the end of 2011.
Additional tanks will lower prices for consumers. It will also increase pipeline capacity because of added delivery options, helping refiners process crude from North Dakotas Bakken field and the Alberta oil sands.
TransCanada Corp. anticipates the extension to Cushing of its Keystone pipeline that now runs from Hardisty, Alberta, to Wood River and Patoka, Illinois, to be in service in Q1 2011. The Calgary-based company expects the final leg of the pipe, which will connect Cushing to the Gulf Coast, to be completed by early 2013, pending regulatory approvals.
Canada, the largest US crude supplier, may increase production 21% to 3.29 million barrels a day in 2015 from 2.72 million in 2009, the Canadian Association of Petroleum Producers said in June.
North Dakota oil output jumped 33% from January to 314,000 barrels a day in June, according to the Energy Department in Washington.