In this video we focus on the dynamics of potential pipeline constraints pressuring oil prices in Cushing, OK. A key issue is the historical price spread between Cushing and Houston, which was minimal—around $1 to $2—before 2017. However, between 2017 and 2019, this spread widened significantly due to supply pressures, highlighting risks for producers sending oil to Cushing instead of export-oriented markets like Houston.
The primary cause of Cushing’s constraints during 2017-2019 was an influx of oil from multiple sources. Production increases in the Powder River, DJ Basin, and Oklahoma added significant volumes, with pipelines like Pony Express, Saddlehorn, and White Cliffs feeding directly into Cushing. Simultaneously, Western Canadian production grew, with pipelines such as Enbridge’s Flanagan South and Spearhead directing additional barrels to Cushing. The most impactful factor, however, was the Permian Basin’s rapid production growth. Unable to access sufficient Gulf Coast pipeline capacity, Permian oil was rerouted to Cushing, overwhelming storage and depressing local prices, which led to the widened Houston-Cushing price spread.
Examining pipeline infrastructure reveals why Cushing faced pressure. Between 2016 and 2019, regional production from Oklahoma, Colorado, and Wyoming rose by nearly half a million barrels per day, much of it flowing to Cushing. Western Canadian output increased by almost a million barrels daily, some of which reached Cushing via Midwest pipelines. Permian production surged from 3.5 million to over 6 million barrels per day, filling Gulf Coast pipelines like Cactus I and forcing excess barrels to Cushing through pipelines like Centurion. This convergence of supply streams strained Cushing’s egress options, as southbound pipelines—Seaway, MarketLink, and Red River—reached or neared capacity.
Cushing’s southbound pipelines struggled to handle the surplus. Seaway, with a capacity of 950,000 barrels per day, saw flows spike and required expansions using drag-reducing agents. MarketLink, expanded to 820,000 barrels per day, also hit its limit, contributing to price weakness. Red River, a smaller pipeline, was constrained by Valero’s refinery demands at Hewitt, limiting its ability to move oil to the Gulf. By 2019, these pipelines were nearly full, exacerbating Cushing’s oversupply and reinforcing the price discount compared to Houston.
Looking forward, the risk of Cushing facing similar constraints appears lower in the current $60-per-barrel price environment. Permian production is less likely to overwhelm Gulf Coast pipelines, as capacity on pipelines like Wink to Webster and BridgeTex remain available. Cushing also benefits from additional indirect and direct egress options, such as the reversed Capline pipeline and potential expansions on MarketLink. Furthermore, pipelines like BP1 and Ozark offer flexibility to redirect oil to Midwest refineries, balancing supply. The Diamond Pipeline, primarily serving Valero’s Memphis refinery, could also feed into Capline under extreme conditions, providing another relief valve.
Overall, while Cushing faced significant challenges in 2017-2019 due to oversupply and limited pipeline capacity, current conditions suggest resilience. With stable production, expanded Gulf Coast pipelines, and multiple egress routes, Cushing is better positioned to avoid severe price dislocations. For Bakken producers, pipelines like Pony Express and Bridger remain viable for reaching Cushing, offering competitive netbacks compared to alternatives like DAPL, provided market dynamics remain favorable.
0:00 Introduction
1:01 Houston and Cushing Pricing Comparison
2:43 Historical Production Increases
4:45 Historical Rockies Supply Increases
6:52 Historical Western Canada Supply Increases
8:47 Historical Permian Supply Increases
11:28 Southbound Pipelines 2016-2019
19:13 Southbound Pipelines 2020-Present
25:00 Permian Egress Still Open
27:30 Midwest Relief Valves
30:50 Capline Relief Valve
32:25 Diamond Pipeline Relief Valve
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