Cushing’s Oil Glut Could Depress Market

The Oklahoma oil industry, worried over the glut of crude oil stored in Cushing, is working to do something about it.
“Pipelines are wonderful things, as long as you have the takeaway capacity to move that oil to other markets and not having it bottlenecked in one area,” said Enid oilman Harold Hamm during the 90-minute hearing at the Oklahoma Corporation Commission last month.
People in the petroleum sector are talking to state regulatory agencies behind the scenes to hold meetings or hearings similar to what happened at OCC in July, said Mickey Thompson, executive director of the Domestic Energy Producers Alliance.
DEPA is a grassroots organization, formed in March this year. It is made up of independent oil and natural gas producers from Oklahoma, Texas and Kansas. The goal: Domestic energy advocacy and education. It is devoted to the “survival” of U.S. independent producers, royalty owners and the service companies, according to the Web site.
“DEPA is not another oil and gas networking opportunity,” the Web site reads.
DEPA is aggressively pursuing a number of objectives, Thompson said.
The organization has several “irons in the fire” relative to Canadian crude oil and its impact on U.S. markets. DEPA plans to intervene at the Federal Energy Regulatory Commission and file comments with U.S. Department of State as the Keystone XL pipeline permit process moves along, Thompson said. The TransCanada Keystone pipeline will be bringing tens of thousands of barrels of crude directly to Cushing from Canada.
“We are working with landowner groups in all the Midwestern states along the route of TransCanada’s Keystone XL project,” he said.
During the OCC session July 28, executives and industry observers insisted that thousands of barrels of crude oil from Canada has depressed the Cushing market, where the New York Mercantile Exchange sets its prices.
Hamm, CEO of of Enid-based Continental Resources Inc., voiced concern that Cushing’s vast oil storage would decimate the market, just as the storage level did 15 years ago in Wyoming under similar circumstances. Prices plunged as far as $24 a barrel below market price when pipelines brought in as many as 235,000 barrels of Canadian crude oil a day.
“It can really get upside-down quickly,” said Hamm.
Falling oil prices have a crippling effect on this state, said Mike McDonald, chairman of the Oklahoma Independent Petroleum Association.
“For every one dollar decline in the weighted average price of Oklahoma crude, the state of Oklahoma loses more than $8 million in gross production tax and income tax,” McDonald said.
Today, though, the oil sector is planning to do something about it, Hamm said in a telephone interview a few days after that hearing.
“I can’t say what it is,” Hamm said.
At the OCC hearing, McDonald wondered if the state could tax oil stored at Cushing for more than 30 days or whether officials could do anything to encourage construction of more refineries or pipelines.
At the OCC hearing, DEPA asked the commission to conduct an inquiry into issues that triggered the dramatic negative blow-out of crude oil price differentials across much of the U.S. in January of this year.
Several oil and gas company owners and executives addressed the three-member OCC panel, which controls right of way issues but has no authority to govern prices or the market. ?

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