No crude production cuts this quarter

February 3, 2015 08:59 PM

Inventories will continue to build going forward. An interesting article published by Reuters on Tuesday highlighted an option found in the shipper’s contract for shipping oil on the newly commissioned Flanagan South pipeline. Oil traders contracted to move crude along Enbridge Inc.’s 600,000 barrel-per-day Flanagan South pipeline are considering triggering the clause, which says shippers can store oil in Cushing, Okla., for up to six months without paying a penalty, provided storage space is available, rather than shipping it to the Gulf Coast directly. The oil can be shipped to the U.S. refining hub at a later date for a small 25-cent per barrel fee, according to tariff filing from October.

This opens a window to add a large amount of storage in Cushing at essentially no facility charge for 6 months. With cost of money relatively low this option is likely to be exercised by the shippers unless there are other loopholes not reported or identified in the article. We have already seen Cushing inventories build for the last nine weeks in a row and with this option and the market in a wide contango building will continue going forward.

A strong rally in global equities hit over the last twenty four hours with all 10 bourses in the EMI Index rising. The EMI Global Equity Index increased by 1.66 percent sending the year to date gain back in to positive territory. The EMI Global Equity Index is now showing a year to date gain of 1.6 percent. There are now seven of the ten bourses in the Index in positive territory as China moved back into positive territory and Brazil narrowed its losses. Global equities were a positive for oil prices on Tuesday.

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