Business | Oil & Gas
Nymex defends WTI, says Cushing storage ample
US crude oil's unusual discount to London Brent has been driven by a flawed perception in the trading community that oil storage at the Nymex delivery point in Oklahoma is full, and does not mean the benchmark is becoming less relevant, Nymex officials said.
- Reuters
- Published: 23:19 January 21, 2009
New York: US crude oil's unusual discount to London Brent has been driven by a flawed perception in the trading community that oil storage at the Nymex delivery point in Oklahoma is full, and does not mean the benchmark is becoming less relevant, Nymex officials said.
US West Texas Intermediate crude futures traded on the Nymex dropped to a record $11-per-barrel discount to Brent last week amid concerns about brimming stocks at the Cushing, Oklahoma, storage hub, leading some analysts to question whether WTI remained a useful benchmark for the global oil market.
Defending the contract as "the most transparent benchmark crude", Nymex researchers said they believe there is at least five million barrels of operable storage space left at Cushing and denied there were any logistical problems looming there that would force prices lower.
"Our feeling is that Cushing is not going to fill up, and there's plenty of new storage being added, too," Bob Levin, managing director of energy and metals at Nymex, said in an interview. "All this is going to blow over."
March crude oil futures on the Nymex traded at about $40.80 a barrel on Tuesday, compared with March Brent at around $43.60 a barrel - putting the higher-quality US grade $2.80 below its European counterpart. Last week, the difference between the now-expired February contracts was around $11.
"The sentiment that Cushing is at capacity has been a major factor in prices, but I'm not one of those people who think storage is at capacity," said Tom Bentz, senior commodity analyst at BNP Paribas in New York.
Information about storage capacity at Cushing is hard to find because the companies that own the tanks do not openly report the data. But Nymex estimates it stands at around 47.5 million barrels, Levin said.
Some 80-90 per cent of that - or 38 million to 42.8 million barrels - can be used while maintaining safe operational levels, he added, meaning there is at least five million barrels of operable capacity left at the hub.
The most recent US government data showed there were some 33 million barrels of crude occupying Cushing's storage tanks in mid-January.
A Reuters survey of five oil market analysts last week put Cushing's total storage capacity at 40 million barrels - an estimate that is well-below Nymex's assessment and that would have meant Cushing was near its operational limit.
Full storage at Cushing will threaten delivery problems at the key Nymex contract delivery point, backing up the network of pipelines that converge there.
Storage of crude has increased across the US in recent months due to dropping fuel demand and the effects of a contango market, in which oil for front-month delivery trades at a major discount to later months, creating an incentive to store oil instead of refine it.
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