May 26, 2013 [OPIS] - The stronger push of domestic crude from West Texas and the Midcontinent to the Gulf Coast has resulted in a full crude storage tank utilization at many terminals in Houston as well as robust crude storage tank rates.
It is a tale of two cities for crude storage tank rate moves. While Houston crude tank rates firm in the several months amid rising demand, Cushing rates have fallen sharply.
Houston crude tank rates in the spot market are pegged at about 65cts per barrel. The actual rates would depend on the term of the tank lease.
In comparison, Cushing rates dropped from about 50cts per barrel last year to only 30cts per barrel in May. This is due to new or reversed pipelines delivering crude from Cushing and West Texas to Houston.
Seaway pipeline began delivering crude to the Gulf Coast last year, and Permian Express is on track to deliver the first West Texas crude shipment from Wichita Falls, Texas, to Nederland, Beaumont, Port Arthur and Lakes markets on the Gulf Coast in June.
Magellan’s reversed Longhorn pipeline is to average approximately 90,000 b/d from mid-April through the second quarter, ramping to its full 225,000-b/d capacity in the third quarter of 2013. The Longhorn pipeline began deliveries of crude oil to the Houston market from Crane, Texas, in mid-April.
Logistics sources said that Oiltanking is leading the charge to build new crude storage tanks in Houston. New crude tank space is in demand right now as the tank utilization rate in Houston is close to full or at 100%, they said.
Gulf Coast crude inventory has jumped to a recent high of 195.494 million bbl at the end of April, the highest since 2009, according to the Energy Information administration.
While the Houston crude tank storage market flourishes, Cushing is facing a bearish outlook.
Crude traders expect crude inventory at Cushing to drop to minimal levels of about 25 million bbl by the fourth quarter of this year from the recent high of 50 million bbl. This is because of more pipeline deliveries to Houston from Cushing.
If this prediction materializes, there will be ample unused crude storage tank capacity at Cushing. The maximum Cushing shell storage capacity is estimated at close to 80 million bbl.
Cushing crude inventory for the week ended May 10 was at 49.724 million bbl.
Besides more outlets for delivery to the Gulf Coast, the Cushing storage rate is also weighed down by a lack of contango in the crude market. WTI front-month crude spread is at a slight contango of about 20cts/bbl, which is not sufficient to support a carry to the next month.
In the longer run, the tight crude storage tank availability is expected to ease when Shell’s Houston-to-Houma pipeline project is completed at the end of 2013.
The initial phase of the Ho-Ho reversal was completed in January 2013 to deliver crude oil from connecting pipelines and terminals in East Houston to the Nederland/Port Arthur area. The second phase is to deliver crude from Houston to Houma in Louisiana.
However, the Houston crude storage market could maintain its high demand if the contango price trend returns.