Cushing, Oklahoma, population 7,800, has a steakhouse, a burrito restaurant and a KFC. It also has America’s most important complex of oil storage tanks. The prospect that those monumental tanks might soon be full to the brim rocked global markets this week. The US benchmark oil price plunged below $0 for the first time in history, sparking debate and recriminations across the industry that put the humble city in the spotlight.
The terminals of Cushing are the delivery point for West Texas Intermediate crude oil futures, the most active commodity derivatives in financial markets, and therefore the benchmark that informs traders from Houston to Shanghai. “It’s sort of the Mecca of crude oil on this side of the world,” said Thomas Ramsey, chief executive of Houston-based oil infrastructure company ARX Energy, who at a previous company oversaw a tank construction project at Cushing.
Companies such as Plains All American Pipeline, Enbridge and Magellan Midstream Partners have invested heavily to add tanks on the north and south ends of town. Working storage capacity has increased by more than half in the past decade to 76m barrels, EIAsays. The added space has accommodated surging volumes of oil pouring in from shale formations and Canada. But demand for crude has now dried up in the face of coronavirus lockdowns, with refiners taking just 12.5m barrels a day last week, a quarter less than a year ago. Oil production cuts are only beginning to take hold in response to low prices.
As a result, crude stocks at Cushing climbed to 6om barrels last week, EIA reported. Analysts believe it, and many other tank farms will be full within three or four weeks.