Stephanie Kelly, Arathy Smasekhar, and Nia Williams

NEW YORK, (Reuters) – U.S. oil exports rose following Russia’s invasion Ukraine. Instead of going to Cushing, Oklahoma storage center, barrels of oil are being shipped via the Gulf Coast.

As companies stopped buying Russian oil, the market crashed and oil prices shot up. International buyers seek to source oil from wherever it is possible. In recent weeks, exports of crude oil have been rising out of the United States, which is the biggest crude producer in the world.

Cushing in Oklahoma is known as “the crossroads” of the oil industry. This is the place where U.S. West Texas Intermediate futures contract holders take delivery. Because of its vast storage, it can still be used as a reference point for U.S. inventories, even though barrels are shifting to the Gulf since Washington lifted the U.S. export ban in 2015.

According to U.S. Energy Department data, exports increased by 3.8 million barrels per week for the 18 March week. This is the highest level since July 2021. The Cushing stockpiles currently stand at 25.2million barrels. This is just four years after the low of early March, which was reached in March.

Cushing stockpiles are usually so low that the crude oil price at Midland, Texas is at a discount, in order to draw barrels to the storage hub. Ryan Saxton from Wood Mackenzie, Head of Oil Data, stated, “Usually, when Cushing stockspiles drop that low, the price of crude oil at Midland, Texas trades at an offset to Cushing to attract barrels to the storage hub.”

But that isn’t what has happened. Midland crude trades at a premium of 70c to Cushing barrels.

One trader based in the United States stated that “it shows how big there is for Midland barrels.” “The Gulf Coast pulls to Midland barrels, so there is no need to travel to Cushing.”

The steep discount on U.S. crude oil is appealing to international buyers as it trades at nearly $7 below the global benchmark. The spread was at $9.20 in early February, which is the highest price for crude oil since nearly two-years.

The demand for oil has risen almost to pre-pandemic levels. However, supply has been hampered by the slow response of the Organization of the Petroleum Exporting Countries to the cuts made during the 2020 pandemic. Russian supplies could drop by between 2 and 3 million barrels per day.

Canada, which is fourth in the world for crude oil production, has low storage levels. Dylan White, Wood Mackenzie senior analyst for oil markets, stated that the storage levels in Western Canada were within three million barrels of the record-low usage set in 2017. This was at 30.3%. This number serves as a guideline for the storage facility operational floor, White said.

According to Bank of America analysts (NYSE:), the maintenance of oil refineries, usually occurring in the spring of each year, may increase storage both in Canada and in the United States. However, balances should not be altered.

Graphic: Price of crude vs Cushing hub gains on export demand: https://fingfx.thomsonreuters.com/gfx/ce/gdpzyjdqavw/Pasted%20image%201648238249462.png