When the war between the U.S. and Iran started, it forced a shutdown of the Strait of Hormuz and prompted a move by refiners across the globe to plug the shortage of oil around the world. As a result, oil was drained from the Cushing hub in northern Oklahoma and now its levels are becoming close to critical to the oil and gas industry.
Cushing is among the largest such oil storage hubs in the world but its oil levels have quickly fallen in the wake of the war and some oil firms that use the site are concerned they might reach operational levels.
Reuters reports the nearly 400 massive storage tanks at the Oklahoma site are nearly empty.
Cushing is the delivery site for West Texas Intermediate crude which is one of the world’s benchmark oil contractsand also influences the price of billions of dollars in oil traded on a daily basis.
According to Reuters, Phillips 66 believes Cushing’s storage levels are close to their operational minimum. That’s critical because the refiner considers Cushing to be a major source of crude oil to plants in the Midwest farm belt and Gulf Coast export hub. Reuters explained its report was based on sources who wished to remain anonymous. Officially, the company declined comment.
As of the end of May, inventories at Cushing were down to 22.4 million barrels, according to information and data from the U.S. Energy Information Administration. It reflected a decline of 4 million barrels since the end of February. Between June 2 and May 29, the inventories at Cushing fell by 500,000 barrels.
Continuing with what Reuters reported, it explained that when the levels of oil held at the Cushing Hub fall bellow 20 million barrels, it results in operational challenges, something that has happened since 2015.
Cushing’s working capacity is 78.4 million barrels.
What’s operational level? Reuters received this answer from Jeremy Irwin, global crude lead for analytics firm Energy Aspects.
“At operational minimum levels, there is not enough oil in a tank to pump out and transfer between tanks and blending becomes a challenge, which could delay or cut outbound flow of oil from Cushing. Some tanks have outlets at the bottom that can be used to empty oil completely, while others do not, making it challenging to remove oil at the base.”
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