Market Overview

This Oklahoma City May Be OPEC's Biggest Enemy

This Oklahoma City May Be OPEC's Biggest Enemy

The combined might of some of the world's largest oil producers should be afraid of a tiny town in Oklahoma called Cushing.

Cushing, Oklahoma, has a population in the mere thousands but is home to one of the world's largest oil storage facility. In addition, many large transmission lines terminate and originate in the small town.

According to a Bloomberg report, the town can hold as much as 77 million barrels of crude, which is enough to supply a country the size and population of France for an entire two months.

Oil refiners tend to reduce their inventories in December for tax purposes and park excess crude in Oklahoma and other key regions across the country.

Oil tanks in Cushing hit a high point back in May, and after a brief pause, the tanks are being loaded up with oil once again. This is a major problem for OPEC members who recently came to an agreement to work together and boost the price of the commodity.

In fact, the recent agreement is encouraging refiners to hold onto their inventories, which is "the last thing" OPEC members want to see. The Cushing overhang contributes to pressure on oil prices and pushes the market deeper into contango in which readily available supply is cheaper today than future deliveries. As an example, the discount for WTI crude to be delivered in January is $1.09 a barrel below February.

"Once January expires you are going to see some desperate people," Bob Yawger, director of the futures division at Mizuho Securities told Bloomberg. "This bearish price structure isn't going away."

Image Credit: By roy.luck - originally posted to Flickr as City Hall, Cushing OK, CC BY 2.0, Wikimedia Commons


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