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Why a Thin Cushing Cushion Is Moving Inland Oil Prices · The Gathering Line

• 0:00
  Seven million barrels.
• 0:02
  That's the cushion at Cushing right now.
• 0:05
  Commercial stocks are hovering near 22 million barrels, and the estimated tank
• 0:10
  bottoms, the oil you physically can't pull out without the pipelines starting to
• 0:14
  gulp vapor, sit around 14.6 million.
• 0:17
  So the, the usable gap is barely seven million barrels.
• 0:22
  In the hub that sets the price everybody quotes.
• 0:26
  So here's the little mystery I want to chew on.
• 0:28
  Why would a tank farm in Oklahoma, nearly scraping its own floor,
• 0:32
  change what a producer in Wyoming or Utah gets paid?
• 0:37
  Fair warning, I'm going to walk through this like a desk brief,
• 0:40
  and I will probably trip over a number or two.
• 0:43
  Bear with me.
• 0:45
  Start with the big picture.
• 0:46
  Brent is holding near 94 dollars a barrel, and tanker risks are up.
• 0:51
  OPEC plus is sticking to strict output targets.
• 0:54
  Okay.
• 0:55
  But Western Canadian Select at Hardisty has widened to 16 dollars under WTI.
• 1:01
  Sixteen.
• 1:03
  Why?
• 1:04
  Well, Enbridge's Express line is running full into Casper, Wyoming,
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  and Mexico is trimming its heavy crude exports because its Dos Bocas refinery wants
• 1:13
  the barrels at home.
• 1:15
  Think of it like mailing things.
• 1:17
  An envelope, light crude, goes anywhere cheap.
• 1:21
  A couch, heavy crude, needs a truck, a ramp, and somebody with a bad back.
• 1:27
  Alberta Energy makes this point in a explainer, that lighter oils fetch more because
• 1:32
  they're easier and cheaper to refine, and that easier access to markets shrinks the
• 1:37
  discount.
• 1:38
  So when the couch has fewer places to go, the discount widens.
• 1:42
  That's the whole 16 dollars, more or less.
• 1:46
  Now back to Cushing, because this part sounds backwards at first.
• 1:50
  Refinery utilization in the Midwest, PADD 2, is softening as autumn turnarounds
• 1:56
  begin.
• 1:57
  Fewer refineries running should mean oil piling up, right?
• 2:01
  But stocks are near the floor anyway.
• 2:03
  Hmm.
• 2:05
  I had to sit with that one.
• 2:06
  Here's how I picture it.
• 2:08
  A bathtub.
• 2:10
  You can drain nearly all of it, but that last inch, the pump starts sucking air.
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  Pipelines are the same.
• 2:16
  Below those tank bottoms you get vapor pull and pump cavitation,
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  which is the pump chewing on bubbles instead of oil.
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  So the tub can look half full on a report and still be, um,
• 2:28
  operationally almost empty.
• 2:30
  And that pressure pulls on everything flowing in from the Rockies.
• 2:33
  Then Friday's Baker Hughes count.
• 2:36
  RBN reported total U.S.
• 2:38
  rigs up four to 599, with the Anadarko and the Permian each adding one.
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  And I'll tell you what that number does to me.
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  I've watched earlier cycles where producers saw a spike on the screen and ramped
• 2:52
  drilling, and, and nobody asked whether there was pipe to carry the oil out.
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  The screen price tells you what a barrel is worth at Cushing.
• 3:00
  It doesn't tell you what it costs to get there.
• 3:02
  That gap bites later.
• 3:05
  So let's follow a barrel inland.
• 3:07
  Start in Utah's Uinta Basin, where the crude is waxy.
• 3:11
  Yellow wax is commanding a 3.20 dollar a barrel premium at Gulf Coast refineries.
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  But the local buyer, Salt Lake City, is capped at about 80,000 barrels a day of
• 3:21
  processing.
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  Anything beyond that has to leave by truck, or by rail.
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  And rail is the pain.
• 3:28
  The wax means heated, coiled rail cars, and producers like Ovintiv and XCL are
• 3:34
  looking at 16 to 18 dollars a barrel in freight.
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  The fix on the table is the 88 mile Uinta Basin Railway.
• 3:42
  The Supreme Court voted eight to nothing in May 2025 to reverse the D.C.
• 3:46
  Circuit, per the Surface Transportation Board's own release as DTN reported it.
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  But it's, it's not built.
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  The case went back to the Board, and more permitting remains.
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  So the wax waits.
• 3:59
  Next, North Dakota.
• 4:01
  Bakken production is steady at 1.19 million barrels a day, under the state's 95.8
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  percent gas capture standard, and the Dakota Access Pipeline is running near
• 4:10
  nameplate.
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  Meanwhile, RBN reports Plains All American is paying 585 million dollars for Silver
• 4:16
  Creek's gathering system in the Powder River Basin, a network of about 600 miles,
• 4:22
  aimed at moving crude toward Cushing.
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  And Kinder Morgan is preparing to convert the Double H crude line to natural gas
• 4:28
  liquids.
• 4:29
  Size of that line, I've seen 84,000 barrels a day in an older RBN piece and 88,000
• 4:35
  in my notes, so call it the mid eighties and don't quote me to the barrel.
• 4:39
  Notice what that means.
• 4:41
  A crude line leaving the Rockies is going away, while rigs are going up.
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  That sets up the paradox.
• 4:49
  Guernsey Sweet, in Wyoming, is trading at an 85 cent premium to Cushing and 2.10
• 4:55
  over Clearbrook.
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  A premium.
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  At a hub that's full of storage.
• 5:00
  Which sounds wrong, doesn't it?
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  Full tanks should mean cheap oil.
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  But full tanks aren't the constraint.
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  The constraint is the exit.
• 5:09
  The Pony Express system moves 230,000 barrels a day from Guernsey to Cushing,
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  and it's heavily apportioned, meaning shippers ask for more space than exists and
• 5:19
  get cut back.
• 5:20
  So the barrel that actually gets a seat on the pipe is worth more than the one stuck
• 5:24
  in a tank.
• 5:26
  RBN noted this flip has happened before, after the Dakota Access startup about seven
• 5:30
  years back.
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  And now Enbridge is buying Tallgrass's crude business for 2.55 billion dollars,
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  including a 75 percent stake in the 1,050 mile Pony system.
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  Somebody just paid a lot to own the door.
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  So, the netback math, plain as I can.
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  Netback is the sale price minus the cost to get it there.
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  A producer can pay the pipeline tariff to squeeze into an apportioned line like Pony
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  or Platte.
• 5:56
  Or ship on heated rail and eat a 13 to 15 dollar netback loss.
• 6:01
  I don't have the tariff number in front of me, but it's clearly the cheaper pain.
• 6:05
  Hmm, so people pay up to wait in the line, because the other line is worse.
• 6:10
  For terminal operators, that means the next round of shipper nominations is going to
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  be tight, and they should plan for cut volumes rather than hope.
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  And back to my seven million barrels.
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  That thin cushion at Cushing is why every barrel moving south matters more than the
• 6:24
  sticker price says.
• 6:26
  Anyway, that's the desk brief.