Due to the construction of a large new oil pipeline in Canada that transfers crude oil to other locations, a major crude oil hub in the United States has dried up nearly completely, causing the market signals that traders rely on to become unclear.

Over the past four months, crude oil inventories in Cushing, Oklahoma have been decreasing and are now close to the lowest level in the past ten years.

Market participants say that this decrease typically happens when there is an increase in demand for driving season fuels. However, this year, due to the expanded Trans Mountain pipeline that is redirecting Canadian crude oil supply to the Pacific coast of the country, away from the Gulf Coast of the United States, the decrease in inventories has become even more severe.

Since its operation began in May, the expanded Trans Mountain pipeline has been transporting approximately 0.4 million barrels of crude oil per day, resulting in a loss of nearly 13 million barrels of crude oil from the Cushing inventory during this period.

The flow of Canadian crude oil to the Gulf Coast of the United States has decreased to a point where Enbridge, a competitor company, has had no congestion in its pipeline system for most of the time, which is typically seen during the summer driving season in the U.S.

Traders say that European demand for U.S. crude oil is also drawing crude oil away from the Cushing inventories, especially after the disruption in supply from Libya, as buyers are looking for similar grades of crude oil.

Scott Sheldon, an energy expert from TP ICAP Group Plc, said, 'Due to the risks in Libya, I tend to believe that oil inventories will remain at the bottom, and the market will drive up the export cost of WTI crude oil.'

The continuous decrease in Cushing inventory has helped lift the spread between the two closest WTI crude oil futures contracts. After climbing to the highest level in nearly a month, the spread hovers around $1 per barrel.

The change in crude oil spread is a closely watched supply-demand balance indicator. Although there are concerns about long-term oversupply, the current change in spread indicates the insufficient amount of crude oil available for immediate delivery.

Cushing's current inventory is about 22.7 million barrels, less than one-third of the center's 78 million barrel storage capacity. The rapid decline in inventory has raised concerns that the normal operational capacity of the hub may be threatened.

Fed rate cuts, CTA bids, and record short covering have driven oil prices rebounding.

Oil prices have risen more than $6 from last week's lows, with the recent increase benefiting from a global market risk appetite.

Bloomberg's Alex Longley wrote that the daily price fluctuations for August and September oil prices are the highest since the beginning of the year. Against this background, fund managers are net short on Brent crude oil for the first time ever. With the Fed rate cuts easing financial market concerns, the time is ripe for oil price rebounding.

There may be more rebounds in the future, as crude oil prices are quickly approaching levels where a large amount of CTA bids may appear. In addition, the situation in Libya continues to be volatile, with daily production still far below one million barrels, and the inventory at the Cushing storage center, the pricing point for US crude oil futures, remains at extremely low levels.

As summarized by Longley, "Given that oil prices often overshoot in both directions, seeing this rebound trend is not surprising".