The NYMEX WTI crude prompt contango spread is wide at about $1.50/bbl, offering plenty of financial incentives to store crude and rolling long crude positions month to month. Storage players could pocket up to a dollar/bbl depending on individual company tank rates and time money value calculation.

However, the forward WTI contango price curve for the latter part of 2015 and 2016 flattens out significantly to less than 50cts/bbl, partly reflecting the expected cutback in production amid low oil prices.

“It takes about 12 months to complete storage tank expansions. The forward prices and tank demand outlook don’t support that investment,” a major logistics player said.

Cushing is finally fulfilling its hype from a few years ago. Many oil players had expected a robust and “guaranteed” demand for Cushing storage, but it fails to reach its goal due to a lack of price contango last year.

However, Cushing crude players with tanks in hand have seen a reversal of fortunes in the past six months.

A combination of rapidly growing domestic production and a wide prompt crude price contango jacked up crude inventory level to an all-time high at 58.943 million bbl for the week ended March 27, and some analysts expect Cushing crude storage to reach the tank-top level of 71 million bbl by May or June.

The strong storage demand jump led to a spike in storage tank rates at Cushing.

“Tank rates were 25-30cts/gal at Cushing a year ago, and many players were sitting on empty tanks and losing money,” a second source said. Cushing inventory was at about 17.680 million bbl as of end-September 2014, with the total working tank capacity at 71 million bbl. Fast-forward six months, the Cushing inventory has more than tripled, and Cushing tanks are now 83% filled versus 25% in September 2014.

Storage tank rates have gone up significantly to more than 50cts/bbl if a player can still find tanks in this bullish storage market.

In the past five years, Cushing has added about 25 million bbl of new storage capacity in anticipation of the rising domestic crude production. Cushing is a crucial location for NYMEX crude deliveries.

After Cushing storage tanks are filled eventually, traders expect more domestic crude to flow to the Gulf Coast market, which should put pressure on Gulf Coast crude price differentials and potentially back out more imported crude. Coastal refineries could also benefit from the full Cushing tanks.

The other potential impact of the over-the-top crude inventory is the return of a dislocated WTI crude when compared with Brent and the global crude market. A dislocated WTI crude would hurt U.S. oil producers, but it could be beneficial for U.S. refiners enjoying the healthy refining margins.

Another option is to barge or deliver more crude from Houston to Louisiana refiners. The U.S. crude export ban remains firmly in place, with only processed condensate allowed to flow out to mostly Europe.