This content is from: Portfolio

The Secretive Town at the Center of the World’s Oil Market

Cushing, Oklahoma, set the stage for the Great Oil Price Crash of 2020. But was it really to blame?

On the way to Cushing, Oklahoma, a young man, weary from the traffic and the chaos of the mule skinners, teamsters, and oilmen, sought refuge in a cobbled-together, unpainted saloon at the side of the road. He had been hub-deep in the mud for more than an hour, waiting to get into town, but had traveled less than a mile in the waning twilight.

Discouraged, he made his way to the bar to order a drink. Glancing down, he saw an inebriated man drowsing on the floor. Nearby, two men were slumped over a card table, nodding off. The bartender, who also seemed to be dozing, ignored him when he spoke. When he touched the bartender’s arm, the man crashed into a heap on the sawdust-covered floor. That’s when the young man noticed the cash register was open and empty. Everyone in the room was dead.

Rushing outside and shouting, “Murder!,” the man tried to flag down help, in vain. It was the height of Cushing’s oil boom. By 1917 the town was pumping more than 300,000 barrels a day. None of Cushing’s wildcatters — among them future oil billionaire J. Paul Getty — wanted to lose his place in the bumper-to-bumper line to the oil fields. Violence was commonplace. Robbery, looting, and murder were part of the landscape. It’s a story told among the residents to this day, and can be found in the out-of-print book Cushing: The First 100 Years.

Once at the center of America’s black-gold rush, Cushing is now the world’s largest onshore oil storage and energy market hub. Signs of its long, tumultuous history can be seen throughout the town, which is situated on a barren plain surrounded by muddy grasslands. Pump jacks swinging their slow, mesmerizing limbs search for the last of the region’s oil in backyards, schoolyards, churchyards, and empty lots. The city’s population, which peaked in 1930 at just below 10,000, has been in decline ever since, lingering at slightly above 7,000. The town’s graveyards have more people in them than the homes. Beneath the ground, oil pipelines converge from every corner of North America, harking back to when oil flowed in Texas and Oklahoma seemingly without end. 

“It’s just been a part of life here for as long as I can remember,” says 70-year-old Farrel Kleckner, a retired postman and a lifelong resident of Cushing. He also serves as the town’s honorary historian. “When I was a kid growing up on Cherry Street, I’d go out on the porch and the whole town would smell like sulfur. No one complained. People would say it smelled like money.”

But the tiny town of Cushing is now the focus of a monthslong government investigation into why the price of West Texas Intermediate light sweet crude oil futures dropped below zero on April 20, briefly trading at minus $40.32 a barrel before settling at
–$37.63. 

“The one thing that everyone will remember about the oil market is that it went negative in 2020,” says Paul Horsnell, head of commodities research at Standard Chartered in London. “This is a physical story. It’s a good story because it’s a resonant story. Look at what was going on in the world at the time with the pandemic. A lot of people were panicking. The markets were under extreme stress, and prices and demand were falling very rapidly. The numbers in Cushing did look pretty horrible — but Cushing did not fail.”



The reason Cushing is a physical story is that it provides physical barrels of oil to investors across the globe betting on the most heavily traded commodity on earth: light sweet crude oil futures, traded on the New York Mercantile Exchange. 

Indeed, it is the connection between the cash prices for Cushing’s “wet” physical barrels and the “paper” prices of Nymex crude oil futures contracts that gives the market its credibility. Each Nymex contract is exchangeable for 1,000 barrels of physical crude oil.

Horsnell, who is based in Oxford, England, has been to Cushing a few times, usually as a pit stop on trips to Oklahoma City. “There’s not anything to see or do; it’s just a pipeline crossroads,” he says. “But I always insisted on taking the diversion, much to the frustration of my colleagues.” 

Each time he has visited, he’s surveyed the town’s “tank farms” — hundreds of massive steel oil tanks stretching from north to south, as far as the eye can see. 

A lonely outpost in what was once “Indian Territory,” Cushing is an unlikely physical delivery point for barrels of oil against the West Texas Intermediate futures contract, but its influence was cemented long ago with its oil boom. The city is more than 500 miles north of Houston’s international shipping channel, 70 miles northeast of the nearest major metropolis — Oklahoma City — and 1,400 miles from Wall Street.

When the first crude oil contract started trading there, few suspected it would permanently put Cushing on the map, let alone rivet generations of Saudi oil ministers and market prognosticators, but that’s exactly what happened. Launched in 1983, the Nymex crude oil futures contract almost immediately became a global benchmark and, to this day, remains the basis for how banks, hedge funds, trading firms, power plants, gas stations, and fuel distributors around the world price a barrel of oil.

In the nearly four decades since, Cushing’s oil pipelines and storage infrastructure have rapidly expanded, gobbling up hundreds of acres of the town and its outskirts, with a handful of companies dominating the terrain and the profits. “The delivery point for the oil contract is there because the infrastructure was already there, and now there’s even more infrastructure there because the contract is there,” Horsnell explains. 

“It’s a little bit of a historical accident,” he adds.

The reason Cushing’s numbers looked so horrible last spring is that, just as oil prices fell below zero, the town’s oil storage tanks appeared to be nearly full, triggering a price collapse that did not stop, even when the barrel lost all value. At the time, investors were racing to liquidate their positions in Nymex crude oil futures before the contract expired and entered its delivery phase in Cushing. Many were forced to sell at negative prices after learning there might not be enough room left in Cushing’s oil tanks to take delivery.

Such incidents, though rare, are not necessarily shocking, given Cushing’s idiosyncrasies. “The fact is, commodities are great big bulky things when you have physical delivery,” Horsnell says. “The mechanics of the market can have bizarre effects on prices. Physically delivered commodities aren’t like financially settled contracts. When you get into commodities, you get into all kinds of trouble with physical delivery. Infrastructure matters. The old economy, of which physical commodities are a part, is clunky.”

Crude oil’s plunge into negative territory is now the subject of an investigation by the U.S. futures regulator, the Commodity Futures Trading Commission. Although oil prices have not turned negative again, questions remain about what, exactly, happened and if there was market manipulation afoot. In the aftermath of the price crash, CFTC chairman Heath Tarbert announced that he would undertake a detailed forensic study into what he called “the crude oil price aberration on April 20.” 

The probe, led by the CFTC’s market intelligence unit and backed by a surveillance team within the agency’s division of enforcement, has now stretched on for nearly seven months.

Pivotal to the CFTC’s investigation is determining why Nymex crude oil futures became completely derailed from Cushing’s cash market for wet barrels, which, throughout the month of April, was not trading at negative prices. For there to be an orderly market, oil price discovery functions must align, and on April 20 they did not. The futures contract “ultimately relies on convergence,” Tarbert noted last spring. “At the end of the day, the futures price needs to be the same as the cash.”

Tarbert initially came under fire last April for comments he made suggesting that negative oil prices appeared to be a “fundamental supply-and-demand issue.” In July he repeated this thesis, stating that CFTC’s in-depth analysis “point[ed] to a confluence of fundamental and technical reasons” for oil’s negative price swings, warning that supply-and-demand factors might be enough to explain the anomaly.  

Since then, Tarbert hasn’t revealed much about his team’s findings, but Institutional Investor has learned that a draft of the report is being circulated among the CFTC’s commissioners for feedback and approval before being made public. The final report is expected to be released before the end of autumn.

In the meantime, investors have moved on, Horsnell says, and Cushing’s hegemony remains largely unscathed. 

“People are still trading this market,” he notes. “No one left because of what happened. Who’s going to come up with an alternative when this one works well enough 99.9 percent of the time?”



Not surprisingly, the citizens of Cushing — as well as the billion-dollar energy companies operating the town’s oil pipelines and tank farms — don’t take kindly to being put under the microscope. Particularly when oil is trading at less than $50 a barrel. 

“Living here, you come to appreciate how volatile the market is, how precious it is, and how, in a split second, it can all flip,” says Tracy Caulfield, a Cushing resident for more than 25 years and the president and chief executive of the Cushing Chamber of Commerce. “What happened with oil prices as the pandemic hit, that had nothing to do with us. It was Wall Street and the oil trading markets. When oil prices fall like that, it affects our community, our town. We were the victims. To point the finger at us, that’s crazy. Wow.”

The day after oil prices collapsed, a Facebook video circulated among Cushing’s residents, featuring an energy executive explaining that, when oil prices fall below zero, “basically what that means is, you got a guy in Manhattan, New York, who’s trading futures contracts who has no intention of taking physical barrels of oil. He doesn’t want the physical delivery of oil, so he has to sell those contracts to somebody who actually does, such as a refiner or an airline. So the problem was the oil price went down so rapidly the traders needed to pay people to take those contracts.” The Chamber, which posted the video on social media, wrote, “There may be more layoffs because of this [price] plunge. Please pray for our oilfield community.”

Tyson Branyan, chair of the Cushing Economic Development Foundation, which works with some of the biggest oil storage and pipeline companies in the region, including Plains All American Pipeline — the largest — Enbridge, Magellan Midstream Partners, Enterprise Products Partners, and Energy Transfer, insists no one in the industry believed oil’s nosedive was rooted solely in market fundamentals. “In a rural town like this, everybody knows everybody, and we all know those prices were not grounded in reality,” he says. “We all just kind of laughed about it. There was never a real fear — they always have a little extra room in the tanks that they leave open, no matter what.”

That’s not to say the situation did not present real challenges, says Matthew Ramsey, chief operating officer at Energy Transfer, which runs several pipelines and more than 8 million barrels of storage capacity in Cushing. “When you have a drop in demand like that and crude barrels are still being produced, coming in from upstream, you really cannot just turn it off the way you might think you can,” he tells Institutional Investor. “There was a genuine concern because of dwindling capacity that we might actually get to that place.” 

Ultimately, crude oil supplies did not top out in Cushing. According to the Energy Information Administration, the statistics arm of the U.S. Department of Energy, Cushing’s oil storage levels came in at 63.4 million barrels for the week ended April 24, more than 5 million barrels off of Cushing’s record high of 68.6 million barrels, for the week ended April 14, 2017 — a week that saw no negative price action, although it was also approaching contract expiration. 

In fact, Cushing’s oil storage levels did not even reach their year-to-date high until the following week, when they came in at 65.4 million barrels for the week ended May 1. “If negative oil prices were going to be determined by oil storage running out, then the smart money was on that taking place in May, not April,” Horsnell says. 

Cushing’s total oil storage capacity, as of the EIA’s last reading this past March, was 75.8 million barrels. All of which means Cushing always has millions of barrels of wiggle room, even when oil storage levels get frothy. Although some of that space may be spoken for by market participants leasing storage from Cushing’s tank farms, no one in the town can recall a time when space ran out. “You always have to leave room for slack,” says Shaun Revere, Energy Transfer’s senior vice president of crude oil business development. “And there’s always some room due to operational flows, because barrels are constantly coming in and going out.”

Though the momentum of barrels coming in and going out from all over the U.S. and Canada can be nearly impossible to interrupt, terminal operators in Cushing do have complete control, says Todd Stamm, vice president of pipeline operations at Energy Transfer. “Technically, you can stop taking barrels, yes. I would compare it to any other emergency, where you can physically shut it down if it gets really bad. But that’s why you have storage, to help you with that balance of barrels coming and going.” 

In November the EIA released a new statistic tracking Cushing’s overall working storage capacity for barrels of crude. According to the new data, the week oil prices fell below zero, Cushing was utilizing 81 percent of its working storage capacity, compared with 83 percent the following week, when oil prices were back to trading in positive territory, at $20 a barrel. 

In other words, if Cushing’s energy infrastructure is to be blamed in any way for the extreme price moves of this past spring, the CFTC needs to clearly explain why prices never went negative before, even at times when oil storage levels were demonstrably higher and the Nymex crude oil futures contract was also about to expire. It’s also noteworthy that there were no delivery problems for anyone holding Nymex oil futures contracts in Cushing, despite the oil price crash.

“It’s undeniable that Cushing set the stage for the day’s events, but that doesn’t necessarily mean Cushing is to blame,” says CFTC commissioner Dan Berkovitz.


Cushing’s secrecy is a long-standing part of its history — and it is foundational to America’s financial and national security. Because the town houses the largest onshore oil storage complex in North America, its terrain and airspace are carefully guarded by U.S. Homeland Security, the Federal Aviation Administration, the Federal Bureau of Investigation, and a wide range of other national and state authorities. 

“Before September 11 you could walk up to the tanks without having to go through the fencing and all the checkpoints, but you can’t do that anymore,” notes the Chamber of Commerce’s Caulfield. “It’s very shocking to see how many people want to come off the interstate — with their families! — to see them. And they come to the Chamber, people coming in asking all kinds of questions that set off red flags.”

Although there may be no tract of isolated land more heavily monitored, analyzed, and patrolled in the United States than Cushing, even its pipeline and tank farm operators aren’t completely sure how many active pipelines and storage tanks there are in the town. “It’s a spiderweb, and we don’t really measure it by the number of pipelines,” Energy Transfer COO Ramsey says. “We measure it by pipeline connectivity.” 

Cushing’s energy pipelines, which connect countless points across the U.S. and Canada, handle about 3.7 million barrels a day inbound and 3.1 million barrels outbound, according to Energy Transfer’s Revere.

He notes that Cushing’s total oil storage capacity is far greater than what has been previously reported by the EIA, estimating it is currently about 94 million barrels.

Often, when asked to estimate the number of total working storage tanks or pipelines in the town, Cushing’s oil and gas employees will shrug. “We take wild-ass guesses,” one says. “Or we take strategic wild-ass guesses.” 

So difficult is it to get an accurate reading of numbers out of Cushing, some on Wall Street are going to increasingly tremendous lengths to gain an edge — such as using drones and infrared photo technology to get a peek inside its hundreds of oil tanks. 

Dale Parrish, a 64-year-old retired firefighter and pilot, runs a small company, Hover Visions, out of Oklahoma City, offering aerial video and photography to a select roster of international clients, mostly data analytics firms that sell the information. They come from New York, London, Paris, and the Middle East. Parrish oversees drone flights over Cushing four to five times a week. He flies 400 feet — the legal limit — above the tank farms, taking up to 550 pictures per flight, using thermal and other advanced imaging technology to try to determine the supply levels inside the tanks. 

“Everything has a temperature, so when you use thermal imaging, you can see the levels in the tanks and where there is space, because there’s a difference in the temperatures,” says Parrish, who has counted about 350 tanks in all in Cushing. When oil prices dropped below zero, he says, “some of the tanks were completely full, but not as many as you would think. I don’t understand markets the way my clients do, but I heard what was happening. I knew it was big.” 

Airspace over the tank farms is not uncontested space, Parrish says. Many of the terminal and pipeline operators fly regularly over their properties — and some do not appreciate being photographed or monitored. “I got a nice little call from the FBI one day,” he says. “One of the energy companies was trying to make it seem like I was running a nefarious operation.” He was able to defuse the situation because, in part, he had gotten so many clearances with federal authorities when setting up his business. “I knew as a former firefighter that Cushing was considered critical infrastructure designated by Homeland Security, so I went through quite a few levels of approval,” he says.

For those who call Cushing home, the scrutiny can be intense and tiresome, says Kleckner, the honorary historian. He and his wife bought 60 acres north of Cushing years ago to escape the steady creep of oil infrastructure. Today five oil pipelines run through his property, and planes, with the words “pipeline patrol” painted on the wings, fly overhead every day to survey them — one for each pipeline. 

Kleckner bought his home for privacy and deer hunting, but the planes run the deer off, and from his yard he now can see oil tanks to the horizon. He says that although technically an owner may decline to allow pipeline operators onto his land, in practice the pipeline industry usually wins through legal maneuvers such as eminent domain. “In the end you’ve got no choice,” he explains. “If a pipeline company wants to run through your place, they will run through your place. If you argue with them, they will take you to court and force it. Here in Oklahoma the courts give it to them.” 

Kleckner says he has made at least six figures off the pipelines under his land, which he also leases for drilling, but he regrets it. “I had a plan when I moved out here, and it did not include pipelines and storage tanks,” he says. “And I wish I’d stuck to that plan. It has not improved my place or disposition.” 

At night, when the tank farms are illuminated like football fields, “the lights blind me,” he says. But Kleckner will never leave. 

“Cushing is not about buildings or oil. It’s about the people. It’s about Cushing people. I was born in Cushing. I married a Cushing girl and raised three kids in Cushing. And they will come back for Thanksgiving,” he says. “They couldn’t run me off with a snake.”