Cushing utilization testing lows amidst downside price risks as exports take center stage

Historically, low Cushing utilization was a bad sign for upward vol, but the US's increasing dependence on exports may mean downside risks are of immediate concern if global signals are softening.

Three Point Summary

1. Crude inventory draws continue at a faster pace than recent seasonal draws but along a similar trend. Since April, >35mm bbls have been drawn from commercial stockpiles, with a noticeable structural trend draining Cushing tanks to ~28% utilization of working capacity/36% of total capacity. This has been common since the end of the pandemic, given carrying costs and export focus, but it starts to present a risk of volatile events, the timing and magnitude of which are impossible to predict, emphasizing the importance of risk management.

2. PADD 3 tanks are well above concerning levels, though, closer to 70% of capacity and holding ~56% of L48 commercial storage (~240mm bbls). This may moderate risks despite Cushing’s importance as the NYMEX location, given the greater optionality of coastal pricing benchmarks to react to supply risk. WTI Houston continues to trade at as much as a $1.50 premium to WTI Cushing, contributing to the structural shift from carrying barrels in Cushing to exporting them from PADD 2 to PADD 3.

3. Dependent on exports for pricing support, watching premium destinations in Europe and Asia should offer more reliable signals. With signs of surpluses (rising inventories, tighter arbs, and slowing imports), producer hedgers should be just as concerned about directional volatility.