Why a Thin Cushing Cushion Is Moving Inland Oil Prices

Marcus Hayes

Seven million barrels. That's the cushion at Cushing right now. Commercial stocks are hovering near 22 million barrels, and the estimated tank bottoms, the oil you physically can't pull out without the pipelines starting to gulp vapor, sit around 14.6 million. So the, the usable gap is barely seven million barrels. In the hub that sets the price everybody quotes.

Marcus Hayes

So here's the little mystery I want to chew on. Why would a tank farm in Oklahoma, nearly scraping its own floor, change what a producer in Wyoming or Utah gets paid? Fair warning, I'm going to walk through this like a desk brief, and I will probably trip over a number or two. Bear with me.

Marcus Hayes

Start with the big picture. Brent is holding near 94 dollars a barrel, and tanker risks are up. OPEC plus is sticking to strict output targets. Okay. But Western Canadian Select at Hardisty has widened to 16 dollars under WTI. Sixteen. Why? Well, Enbridge's Express line is running full into Casper, Wyoming, and Mexico is trimming its heavy crude exports because its Dos Bocas refinery wants the barrels at home.

Marcus Hayes

Think of it like mailing things. An envelope, light crude, goes anywhere cheap. A couch, heavy crude, needs a truck, a ramp, and somebody with a bad back. Alberta Energy makes this point in a explainer, that lighter oils fetch more because they're easier and cheaper to refine, and that easier access to markets shrinks the discount. So when the couch has fewer places to go, the discount widens. That's the whole 16 dollars, more or less.

Marcus Hayes

Now back to Cushing, because this part sounds backwards at first. Refinery utilization in the Midwest, PADD 2, is softening as autumn turnarounds begin. Fewer refineries running should mean oil piling up, right? But stocks are near the floor anyway. Hmm. I had to sit with that one.

Marcus Hayes

Here's how I picture it. A bathtub. You can drain nearly all of it, but that last inch, the pump starts sucking air. Pipelines are the same. Below those tank bottoms you get vapor pull and pump cavitation, which is the pump chewing on bubbles instead of oil. So the tub can look half full on a report and still be, um, operationally almost empty. And that pressure pulls on everything flowing in from the Rockies.

Marcus Hayes

Then Friday's Baker Hughes count. RBN reported total U.S. rigs up four to 599, with the Anadarko and the Permian each adding one. And I'll tell you what that number does to me. I've watched earlier cycles where producers saw a spike on the screen and ramped drilling, and, and nobody asked whether there was pipe to carry the oil out. The screen price tells you what a barrel is worth at Cushing. It doesn't tell you what it costs to get there. That gap bites later.

Marcus Hayes

So let's follow a barrel inland. Start in Utah's Uinta Basin, where the crude is waxy. Yellow wax is commanding a 3.20 dollar a barrel premium at Gulf Coast refineries. But the local buyer, Salt Lake City, is capped at about 80,000 barrels a day of processing. Anything beyond that has to leave by truck, or by rail.

Marcus Hayes

And rail is the pain. The wax means heated, coiled rail cars, and producers like Ovintiv and XCL are looking at 16 to 18 dollars a barrel in freight. The fix on the table is the 88 mile Uinta Basin Railway. The Supreme Court voted eight to nothing in May 2025 to reverse the D.C. Circuit, per the Surface Transportation Board's own release as DTN reported it. But it's, it's not built. The case went back to the Board, and more permitting remains. So the wax waits.

Marcus Hayes

Next, North Dakota. Bakken production is steady at 1.19 million barrels a day, under the state's 95.8 percent gas capture standard, and the Dakota Access Pipeline is running near nameplate. Meanwhile, RBN reports Plains All American is paying 585 million dollars for Silver Creek's gathering system in the Powder River Basin, a network of about 600 miles, aimed at moving crude toward Cushing. And Kinder Morgan is preparing to convert the Double H crude line to natural gas liquids. Size of that line, I've seen 84,000 barrels a day in an older RBN piece and 88,000 in my notes, so call it the mid eighties and don't quote me to the barrel.

Marcus Hayes

Notice what that means. A crude line leaving the Rockies is going away, while rigs are going up. That sets up the paradox.

Marcus Hayes

Guernsey Sweet, in Wyoming, is trading at an 85 cent premium to Cushing and 2.10 over Clearbrook. A premium. At a hub that's full of storage. Which sounds wrong, doesn't it? Full tanks should mean cheap oil. But full tanks aren't the constraint. The constraint is the exit. The Pony Express system moves 230,000 barrels a day from Guernsey to Cushing, and it's heavily apportioned, meaning shippers ask for more space than exists and get cut back. So the barrel that actually gets a seat on the pipe is worth more than the one stuck in a tank.

Marcus Hayes

RBN noted this flip has happened before, after the Dakota Access startup about seven years back. And now Enbridge is buying Tallgrass's crude business for 2.55 billion dollars, including a 75 percent stake in the 1,050 mile Pony system. Somebody just paid a lot to own the door.

Marcus Hayes

So, the netback math, plain as I can. Netback is the sale price minus the cost to get it there. A producer can pay the pipeline tariff to squeeze into an apportioned line like Pony or Platte. Or ship on heated rail and eat a 13 to 15 dollar netback loss. I don't have the tariff number in front of me, but it's clearly the cheaper pain. Hmm, so people pay up to wait in the line, because the other line is worse.

Marcus Hayes

For terminal operators, that means the next round of shipper nominations is going to be tight, and they should plan for cut volumes rather than hope. And back to my seven million barrels. That thin cushion at Cushing is why every barrel moving south matters more than the sticker price says. Anyway, that's the desk brief.