I’ve mentioned the glut of oil at the Cushing, OK oil reserve a few times in the past. This glut is a main reason why the price gap between West Texas Intermediate (the domestic benchmark used to set oil futures prices at the Chicago Mercantile Exchange) and Brent (the European benchmark used to set prices at the InterContinental Exchange) began to increase in late 2010.

As you may have heard, the new owner of a major pipeline running from the Gulf to Cushing is about to reverse the flow of crude in the pipeline. Imported oil that had been running from the Gulf to Cushing will be replaced with domestic oil running from Cushing to refineries in the Gulf. This is a major development for the following reasons:

- The supply at Cushing will be greatly reduced, which would theoretically apply upward pressure to WTI prices.
- US refineries will need to purchase less foreign oil, which would theoretically apply downward pressure to refined products (gas, diesel, etc).
- The Keystone XL pipeline proposal is now a weaker case, theoretically applying upward pressure to the price of crude.
- Refiners that had been accessing oil from Cushing will now enjoy less competitive advantage vs. refiners who had been accessing oil from other sources. The net effect here is probably neutral.

At this point, it looks like the pipeline’s impact on the price of refined products may be minor. So keep the fundamentals in mind – namely, growth of the domestic economy vs. weakening of the European economy, continued growth of developing nations vs. possible slowing growth in China, etc. And don’t forget about the “human factor” – traders sometimes jump on seemingly trivial factors to push the price of oil up or down.

Where does all this leave trucking? The price of diesel will probably not see a drastic shift anytime soon. But fundamentals point to upward movements on average going forward.