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Domestic Reserves Tamp Down May Prices

The best way to look at energy prices is through what is called the forward curve.  This is much more informative than the popular media reports of the front month spot price.  Sometimes the front month price moves, but the rest of the curve does not.

The curve for the month of May has moved to one of the lowest points seen so far this year, rivaling only March. Bank of America’s research division reports that low prices in much of the US can be attributed to an increase in domestic oil inventories.

Commercial crude stocks in the US are sitting at 395 million bbls, an all-time high level and only 37 million bbls away from what we estimate to be tested maximum storage capacity. True, stocks at Cushing, OK-the pricing point for WTI-fell to 49.8 million bbls in the last available report, briefly pushing prices above $96/bbl. But as other sites fill up, the Oklahoma hub may now hold nearly 45% or 16 million bbls of the country’s total tested spare capacity. As storage tanks continue to fill up, we see growing downside risks to WTI crude oil prices and timespreads Meanwhile, crude oil imports into the US are being displaced by domestic barrels.


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