Why Midwest Crude Is Piling Up While Cushing Stays Tight

Marcus Hayes

Four point four million barrels. That's how much crude showed up in the Midwest in a single week, and if you only read the headline number, you'd, you'd miss it completely. Let me show you what I mean.

Marcus Hayes

So the government's weekly petroleum report came out today. U.S. commercial crude stocks rose to 426.4 million barrels. That's a build of about three million. Well, 2,969 thousand, if you want to be fussy, and the EIA does warn that totals may not equal the sum of the parts because of independent rounding. Anyway. A three million barrel build sounds like the whole country is swimming in oil.

Marcus Hayes

Except it isn't the whole country. The Midwest, that's PADD 2, jumped 4.4 million barrels to 104.1 million. The Gulf Coast, PADD 3, actually drew down by 2.1 million. So picture your fridge. The total milk in your house goes up, but it's all in the garage fridge, and the kitchen one is nearly empty. Total is up. Useful milk, where you need it? Different story.

Marcus Hayes

And here's the layer that makes it weird. Prices. My notes have Brent holding above a hundred dollars a barrel, with WTI, the U.S. benchmark, near ninety three. I should flag that the EIA's own table shows WTI at Cushing at 101.44 on September 18th, so, um, different days, different sources, treat the exact level loosely. The point is the world price is propped up by Atlantic Basin demand for sweet crude and lingering Red Sea shipping risk. That global price can disguise a local pile up inland.

Marcus Hayes

Now the heavy stuff. Western Canadian Select at Hardisty, per my notes, widened thirty five cents in a day to sixteen dollars under WTI. Enbridge's Mainline is apportioned, which just means more crude wants space than the pipe has, so everybody gets a slice. Meanwhile Midwest refiners are starting scheduled fall maintenance. So the barrels arrive and the plants that would eat them are, taking a nap. Add Pemex holding back Maya crude exports to feed commissioning runs at its Dos Bocas refinery, and heavy crude has fewer friendly places to land.

Marcus Hayes

And nationally, refiners are already easing off. The four week average for utilization was 96.6 percent, down from 97.5 the week before. Still high! But slipping.

Marcus Hayes

Okay, so is this a glut? Hmm, I want to say yes, and then I, I, I stop, because there's a counterweight. Cushing, Oklahoma. The hub where WTI futures settle. My notes have stocks there pinned around twenty two million barrels, which is near what operators call tank bottoms. Think of the last bit of a milkshake and a straw. Pull too hard and you get slurping, air, and in a pump that's called cavitation, which can wreck the pump. So a trader sees paper contracts, deep and liquid, and a pipeline scheduler sees a terminal that can literally not deliver another drop. Oversupplied in the Midwest, thin at the hub. Both at once. That's the trap.

Marcus Hayes

So if the Midwest has extra and Cushing is thin, why doesn't the oil just flow to Cushing? Because the road there has a toll booth, and the toll booth is in Wyoming. Let's go out west.

Marcus Hayes

Start in Utah's Uinta Basin. The waxy crude there, yellow wax, is prized. My notes say it fetches about three dollars twenty over WTI, because Gulf Coast crackers want it. But Salt Lake City refineries are cutting throughput below 80,000 barrels a day, and an appeals court delay is holding up the 85 mile Uinta Basin Railway. So producers like Ovintiv, SM Energy, and XCL Resources ship it on heated, insulated rail cars at sixteen to eighteen dollars a barrel. Imagine paying that to mail a very, very fragile cake.

Marcus Hayes

North Dakota, by contrast, is calm. Output flat at 1.19 million barrels a day, with the state confirming 95.8 percent gas capture. But the Dakota Access Pipeline is running near nameplate, meaning full, so the marginal barrels hop on rail cars headed for Pacific Northwest refineries.

Marcus Hayes

And in the middle of all this, somebody's buying pipe. Oil and Gas Journal reports Plains All American will pay about 585 million dollars in cash for Silver Creek, which, quoting them, owns and operates a large integrated crude oil gathering system in the Powder River Basin. My notes say that's about 600 miles of pipe, plus a 49 percent stake in the Powder River Gateway Joint Venture. And separately, RBN Energy reports that Enbridge is buying Tallgrass Energy's crude oil transportation business for 2.55 billion dollars. Same neighborhood, same month.

Marcus Hayes

Why the rush? Because gathering routes are shifting. Kinder Morgan is scheduled to convert its 88,000 barrel a day Double H crude pipeline to natural gas liquids service, so producers will need other ways to reach the hubs. Whoever owns the gathering system, owns the on ramp.

Marcus Hayes

Here's the payoff, and I love this part. Guernsey, Wyoming. That's the hub where Rockies crude collects before heading to Cushing. Guernsey Sweet jumped ten cents in a day, to an eighty five cent premium over Cushing and two dollars ten over Clearbrook. Wait, a premium at Guernsey? For oil that's, that's stuck? That seems backwards.

Marcus Hayes

It isn't, once you see the manifold. Pony Express, the Tallgrass line, carries roughly 230,000 barrels a day from Guernsey to Cushing, per RBN. My notes say it's under heavy apportionment. And there's a 25,000 barrel a day pinch point on the Saddlehorn connector. So barrels without firm space sit in storage, waiting. The price is high because the space is scarce, not because the oil is. Guernsey is the toll booth, and the toll just went up.

Marcus Hayes

So, back to that first number. Four point four million barrels in the Midwest isn't a mystery once you look at the map. Oil piles up where refiners are on break and pipes are full, and the hub that sets the price is running on fumes. Total's up, but the milk is in the garage. I'll keep an eye on that garage fridge.