The risk of filling the key US benchmark crude pricing point and oil storage hub at Cushing, Oklahoma, fell in late April, US midcontinent refiner HollyFrontier said.
Pipeline flows into the storage center and Nymex light, sweet crude futures delivery point had fallen more than expected a few weeks ago, chief commercial officer Tom Creery said today on a quarterly earnings call. Cushing remained within about 10mn bl of capacity, and market conditions could quickly change to leave the 76mn bl of working storage capacity its brim.
"I think the general consensus is that Cushing is not a big danger spot, or as high danger spot as it was previously, in getting full and not being a repository for crude," Creery said. "At this point in time, from a HollyFrontier standpoint, we are not worried about Cushing filling up as much as we were two or three weeks ago."
The US independent refiner supplies roughly half of its crude processing capacity from the hub and through its midstream subsidiary owns and operates interests in two pipelines and 1.5mn bl of storage at the hub. Concerns over the lack of storage space to take physical delivery of Nymex light, sweet crude futures helped push the contract to a record negative settlement in late March.
That had helped uncouple the financially driven WTI and physical Brent crude markets this spring, and complicated some forward planning.
"There has been a huge de-link between a physical and a paper barrel," Creery said.
Production uncertainty led HollyFrontier to keep more crude in storage in some markets and wiped out typical differentials, at times leaving heavy, sour crude prices at parity to domestic sweet. Crude prices would slowly normalize in the third and fourth quarters, with Midland-priced domestic crude at a premium to Cushing barrels and Canadian heavy crude grades reflecting quality and transportation discounts, Creery said.
"I suspect, probably by the third and fourth quarter, you will see it return to that normalcy and get a lot of those knee jerks out of the market," Creery said.
