Keystone XL southern leg having major effect on US oil hub

HOUSTON — The southern leg of the Keystone XL pipeline has drained oil supplies at the Cushing, Okla. hub to their lowest levels in more than two years, according to a federal report released Tuesday.

The crude supply at the major U.S. hub fell to 32.1 million barrels at the end of February, down 8 percent from the week before and the lowest mark since November 2011, according to data from the U.S. Energy Information Administration. The Keystone XL southern leg made its first deliveries to the Gulf Coast on Jan. 22.

The southern leg of the Keystone XL system is sometimes referenced in regulatory filings as the Cushing Marketlink project or the Gulf Coast project.

“The startup of the new Cushing Marketlink pipeline to the Gulf Coast as well as strong refinery runs in the Midwest helped reduce oil inventories at the Cushing, Oklahoma, storage hub to their lowest levels in two years,” U.S. Energy Information Administration chief Adam Sieminski said in a statement.

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The administration, in its short-term energy outlook, also singled out trends that it expects will lower domestic oil prices.

“EIA expects strong U.S. crude oil production growth will help reduce WTI prices to an average of $95 a barrel this year,” Sieminski said in a written statement, referring to the benchmark West Texas Intermediate price, currently at $100.18 per barrel.

Winter effect

Although oil production lagged in December, dropping because of cold weather in North Dakota and elsewhere, it is expected to pick up this year, adding to supply, according to the outlook.

“Bad weather conditions cut into U.S. crude oil production this winter, but much of the production slowdown will be made up over the next few months by accelerated well completions,” Sieminski said. “Crude oil production in the Bakken formation in North Dakota and Montana fell in December, but is expected to rebound to 1 million barrels per day this month.”

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The winter chill has had an effect on natural gas as well, sending gas storage volumes plummeting, the outlook said.

“U.S. natural gas inventories will end the heating season below 1 trillion cubic for the first time since 2003 because of large withdrawals of natural gas this winter to meet high heating demand,” Sieminski said.

But the trend will reverse, the federal agency projects. Sieminski noted that growing natural gas production combined with the power sector’s moderating demand for the fuel, will lead to growth in natural gas stocks between April and September.

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