This led to a gross disparity between available operating storage capacity and demand, with only 51% of the total capacity utilized right now, Abudi Zein, a senior vice president and oil analyst with Genscape, told OPIS in a recent interview.   
However, the grossly underutilized Cushing oil storage hub has more room for expansion as more Canadian crude is expected to flow into the Midcontinent for delivery to the Gulf Coast in the future, he said.   
Genscape is a global provider of energy information for commodity and financial markets. It also publishes the Genscape Cushing Oil Storage report, which estimates physical crude oil inventories via aerial surveys. The report, which is available via subscriptions, is published twice a week.   
Genscape expects another 11 million barrels of new oil storage capacity to come onstream at Cushing by July 2012.   
This is in addition to the current 65 million bbl shell storage capacity or about 59 million bbl in operational capacity.   
This storage capacity at Cushing could rise even higher in the future.   Permits for construction of about 18 million bbl of new capacity have been granted so far, but it is unclear how many of these projects would go ahead as planned amid an ongoing race to erect new facilities as quickly as possible to meet the expected surge in Canadian crude inflow.   
Apart from midstream companies, some trading companies, including Noble Group and Gavilon, are building their own storage tanks at Cushing.   
Although current storage supply overwhelms demand, Zein maintains that there is cause for optimism in the Cushing storage business in the future.   
“Companies building new storage facilities are looking at a 50-year investment,” he said while acknowledging the current storage market fundamentals appear bearish.

BRIGHT FUTURE

Indicators for future demand are seen bullish as more Canadian supplies are expected to flow into the Midcontinent for delivery to the Gulf Coast, Zein said.   He highlighted the Seaway crude pipeline reversal plan and Keystone XL pipeline project as catalysts for an increase in Canadian inflow in the future.   
Seaway reversal is expected to be completed by the second quarter of 2012. The initial flow will be 150,000 b/d, rising to 400,000 b/d in 2013.   
Keystone XL pipeline, which would be an extension of the existing Keystone pipeline from Cushing to Houston, could be completed in 2013, depending on the progress of the permitting process.   
Keystone XL could deliver more than 1 million b/d of crude into the Gulf Coast.   
“Even with utilization at Cushing reflecting multi-year lows, the Midcontinent appears to be adding additional oil storage and pipeline capacity because of an expected significant push of Canadian crude deliveries to the Gulf Coast in the not-too-distant future,” said David Francoeur, the chief marketing officer at Genscape.   
“Canada is considering building a pipeline to export Canadian heavy crude to Asia (via the West Coast),” said Francoeur, but that would be a limited outlet because many Asian refineries refine mostly light sweet crude.   The larger target market for Canadian heavy crude is in the U.S. Gulf Coast, where refineries are more sophisticated and complex.   To support the expected increase in oil deliveries to the Gulf Coast, more pipeline capacity expansion would be needed.   “Most of the shipping capacity on Keystone pipeline is committed to Illinois so far, and more capacity on the pipeline is needed in the future,” Abudi said.   
Besides Keystone and Keystone XL projects, the Spearhead pipeline would need to expand its delivery capacity.   Meanwhile, Zein expects Cushing to regain its status as an important crude trading hub in 2013-2014 as it becomes integrated with the global oil trading system.   
“We see increased interest amongst a broader audience for our twice-weekly oil report as Cushing utilization rates and construction trends continue to evolve significantly,” added Francoeur.    
With more pipeline access to the Gulf Coast from the Midcontinent, Cushing will no longer be land-locked and trading activity will increase, he said.   This ongoing development at Cushing will have an impact on the narrowing Brent-WTI price spread.