“Our in-laws at OPEC gave us … a self-improvement gift” on Thanksgiving Day, Newfield Exploration Co. general manager, Midcontinent, Pat McCelvey told attendees at Hart Energy’s recent DUG Midcontinent conference in Oklahoma City. “They decided we got too used to $100 oil, too … reckless with our investments. I’m not sure they want us to get better, but that’s what we’re going to do.”

John Rutherford, executive vice president, Plains All American Pipeline LP, said U.S. producers have done with oil what they did with natural gas. “We have. We practiced too hard and we’ve gotten too productive.”

Rusty Braziel, president of market-analysis firm RBN Energy LLC, said, “It’s already happened. I don’t think we’ve accepted the fact.”

U.S. crude oil in storage grew by 8.4 million barrels (MMbbl)—twice as much as commodity analysts expected—to 1.125 billion bbl at the end of February, according to the U.S. Energy Information Administration (EIA). Of that, 434 MMbbl was in non- Strategic Petroleum Reserve storage, up from 363 MMbbl a year ago.

Storage at the Cushing, Okla., trading hub, in particular, grew by 2.4 MMbbl to 48.7 MMbbl, up from 34.8 MMbbl a year ago; Gulf Coast inventory, by 4.3 MMbbl to 214.5 MMbbl, up from 177.7 MMbbl a year ago. The day after Thanksgiving, when OPEC announced no cut to its production amid an estimated 1.6-million-barrel, daily, global oversupply, U.S. storage sans SPR was 379 MMbbl; Cushing, 23.9 MMbbl; Gulf Coast, 193.1 MMbbl.

Cushing inventory has more than doubled in three months.

Tudor, Pickering, Holt & Co. Inc. analysts reported, “Yuck … With Cushing stocks near 50 million bbl, we start to get nervous about operation capacity above 60 million, (which would be reached in) four more weeks at this week’s build rate ...” as March began.

Simmons & Co. International Inc. analyst Arinjoy Ganguly added that the Gulf Coast number is near the all-time high of 216 MMbbl that was set last year and will likely be exceeded in the EIA’s March 4 report. In addition, “Cushing is also closing in on an all-time high (of 52 million in early 2013), which we expect will be attained in the coming weeks.”

Meanwhile, “(there is) no impact of rig-count reductions yet on crude production …,” he wrote. Ganguly estimates Cushing working-storage capacity is between 65 MMbbl and 70 MMbbl; Gulf Coast, between 250 MMbbl and 260 MMbbl.

Plains All American owns 20 MMbbl—or roughly one-third—of Cushing storage capacity and a total of 73 MMbbl of capacity across the U.S., according to its 2014 annual report.

Rutherford told DUG Midcontinent attendees, “We, the United States and Canada, are the de facto (world) swing producer. There has been no incremental production added by the rest of the world. We’ve added 5.6 million barrels of (daily) Canadian and U.S. supply and nothing in the rest of the world … You used to see ‘the call on OPEC.’ We just flipped it.”

The call will be on the U.S. in the future, he said. OPEC spare capacity is 4% of global demand today vs. 26% in the 1980s. “It will take time to resolve the current imbalance, but the world needs sustainable North American production growth.”

Comments