West Texas Intermediate (WTI) has been the yardstick by which crude oil has been priced for years now. It usually generates more money per barrel than Brent, oil’s other major benchmark. Usually Brent is priced at $1 to $3 less than WTI, but this year Brent has been priced more than WTI by a margin of three to four dollars. This dip in prices of WTI is due to the fact that this year many refineries have had outages. Cushing, the refinery to Triple Diamond Energy Corp. ship its oil via pipeline, is one such refinery.

Why The Oil Back Up?

The oil drilled from the Gulf of Mexico is transferred trough a pipeline from Texas to Oklahoma, Cushing. Apart from the refineries at Cushing, this oil also supplies the refineries to the north of Cushing. But since the demand for oil is less, much of it accumulated in Cushing itself, causing the backup.

Cushing has no port and is surrounded by land. It’s impossible to reverse the direction of flow of the oil in pipelines, meaning that the only way out would be to transfer the oil via tankers to other parts of the country. However, this would not be cost effective in the long run and the oil continues to accumulate in Cushing.

Another reason for this crunch is the speculation in future markets. It was predicted that the cost of oil would rise in the later months of the contracts so dealers bought oil beforehand and stored it in Cushing. They created a backup for their deliveries in the later months. Together with the refinery outages, this speculation caused a dip in the prices of crude oil.

Current Situation

Cushing is an important center of the oil business in the United States. It not only has major refineries, but the state of Oklahoma also produces a lot of oil. Among the companies that transfer their oil through the pipelines to the refineries at Cushing is Triple Diamond Energy Corp.

In the past, this oil was directly transferred to the refineries of the Midwestern part of the country. Nowadays these refineries are experiencing a slump and the pipelines are used to transport oil from the oil rich Alberta region of Canada. Thus this oil also makes its way to Cushing where there is an excess of supply compared to demand. By the middle of April this year, there were 28 million barrels of oil stored up at Cushing.

Possible Solutions

The ideal solution to this problem is to have new pipelines built or to reverse the direction of flow of the existing ones. A pipeline could be built along the Gulf Coast from where the oil would be shipped to other places. The bottleneck at Cushing is a complicated situation with no fast and evident remedy. As the situation improves, companies like Triple Diamond Energy Corp. and can once again transfer their crude oil to Cushing making the prices of WTI relatively stable.