Among other inconveniences, Washington's shutdown could make it harder to keep track of what is going on in a place just over 1,000 miles away from it: Cushing, Okla.
Cushing, where several major pipelines meet, is where oil futures are settled physically. So stock levels there are watched closely. The Energy Information Administration releases those figures once a week, but the shutdown could soon prevent it from doing so, leaving the market in the dark.
Here's betting, though, that Cushing's tanks are going to empty out some in c
oming weeks. All else equal, that is bullish for benchmark West Texas Intermediate oil prices.
Just don't get carried away.
In contrast to much of history, WTI has traded at a discount to Brent crude oil pretty consistently since August 2010 as rising U.S. output led to gluts in the Midwest. In the 12 months ended in July, Cushing inventories averaged 47 million barrels, up from 33 million in the same period ending in July 2010.
WTI's discount to Brent peaked at almost $27 a barrel last September. By July, though, it was catching up fast. The reason: New pipeline capacity was opening up, providing options for draining the oil toward the coast, where it could be refined for exporting at global, or Brent-like, prices. Cushing inventories have dropped by a third since the end of June.
By early September, the discount had widened to almost $8, but it narrowed again last week to under $6 on news of more pipeline capacity. The southern leg of the Keystone XL pipeline, not subject to White House approval, is to be completed by month's end. So even more oil should flow south from Cushing.
Ultimately, though, while the spread between WTI and Brent is likely to keep swinging in a narrow range, it is unlikely to close altogether. New pipelines may help funnel Cushing inventories south, but there is still plenty more oil ready to roll in from the north to refill the tanks.
While the EIA may be operating on fumes at this point, it said Friday that it expects the U.S. to be the world's largest producer of petroleum—which includes oil, natural-gas liquids and other liquid fuels—this year. Markets concur. One example: A glut in the Bakken shale has pushed the discount on oil from there against WTI to $13 a barrel, its widest since June 2012.
As long as those landlocked crudes need an outlet to the world via Gulf Coast refineries, they will keep competing with WTI, capping its price. That offers some comfort for investors in refiners such as HollyFrontier, whose stock is pretty correlated with the Brent-WTI discount and which has fallen 16% since the end of May.
It is of less comfort to WTI bulls. Having closed much of the gap with Brent, WTI's year-to-date gain stands at 13%. But now Brent represents a ceiling. And despite supply disruptions in places like Libya, and threats of war in the Middle East, Brent is still down 1.5% this year.
Worse, if Washington's shutdown metastasizes into a debt crisis, a lack of EIA data will rapidly become the least of oil investors' worries.
