Business takes a turn for the better at the world's oil pipeline crossroads

You won't find too many people grumbling about the oil price's lurches in the sleepy prairie town of Cushing. Things are looking up for the rural community where Wall Street's energy gambles are translated into reality.

A modest settlement of 8,300 people, the Oklahoma town is home to a shabby collection of junk stores, a medium-security prison and a handful of barbecue restaurants. But these buildings are dwarfed by hundreds of vast steel storage tanks holding 46m barrels of oil — worth, at current prices, more than $5.5bn.

An oil-themed sculpture on the country road into Cushing proclaims that the place is the "pipeline crossroads of the world". A spaghetti junction in the continent's network of underground oil pipes, Cushing is the official delivery point for any oil bought on Wall Street's Nymex commodities exchange.

"While a lot of towns have suffered some economic setbacks recently, we have not," Cushing's mayor, John Henckel, told the Guardian.

Junction city 

An hour's drive east of Oklahoma City, the town is a point at which oil pipes from the Gulf of Mexico's ports meet lines to refineries across northern, ­eastern and western US, coinciding with pipelines bringing crude south from Canada's oil sands.

"We didn't become the crossroads of the oil industry by any great design," says Henckel. "It wasn't that a bunch of guys got together and said they were going to build an oil system and put Cushing at the centre. It just evolved."

When investors buy or sell oil contracts on the Nymex trading floor in New York, they are dealing in the right to ­collect barrels of oil at depots in ­Cushing. Laboratories here check the purity and metal content of crude to ensure it meets various grades such as west Texas intermediate, Oklahoma sweet or western Canadian select. Some customers ask for different crudes to be blended to a particular recipe.

If speculators hang on to oil in the hope of a price rise, or if airlines choose to hedge against surging fuel costs, they often do so by storing oil in Cushing.

BP has about 65 tanks in Cushing holding 10m barrels' worth of cus­tomers' oil. The British company's reputation was sullied two years ago when regulators accused it of using data from its Cushing pipelines and tanks to manipulate the price of crude oil.

But the biggest player locally is Enbridge, a Canadian firm, which has 93 tanks including vast 575,000-­barrel drums that each hold more than a small ocean-going oil tanker. New tanks are rapidly going up in the fields on ­Cushing's outskirts.

"We're responding to our customers' demand for storage," says Bruce MacPhail, Enbridge's director of contract terminals. He cites "more hedging, more use of contracts for risk mitigation and financial players using the market to speculate and make money".

Since the beginning of the decade, the amount of oil stored in Cushing has jumped by more than 50%. In the past four years, the value of the stuff has rocketed as the price of crude has tripled.

Mind-boggling flow

"Oil is the lifeblood of Cushing," says Jim Perry, managing editor of the weekly Cushing Citizen. "The storage capacity is large. Even more mind-boggling is the flow of oil in pipelines through Cushing."

Such a lot of oil can cause hazards. Residents are urged to call a freephone number run collectively by the oil companies before doing any excavation in their gardens, to check whether any pipelines lie beneath. At least twice a week, engineers in light planes fly over the path of every major line to keep an eye out for construction or any activity that might burst a pipe.

"They say if you took a claw and turned up the ground here, it would look like a bowl of pasta," says Roy Maye, a safety officer at Enbridge.

When oil prices peaked in July at $147 a barrel, Cushing's economic development director, Robert Felts, was getting cold calls from speculators fishing for information about the volume being stored by investors. "Even if I knew, I wouldn't have told them," he said.

Record prices have led to a flour­ishing scene in small-scale entrepreneurial drilling. Cushing sits on top of an old oilfield that was a major source of production in the early part of the last century but has been abandoned as uneconomical.

With prices at nearly $120 a barrel, long forgotten marginal wells in ­backyards and farmers' fields have suddenly become attractive. Known as "stripper wells", these are springing into pro­duction across the south - there are 65,000 in Oklahoma alone, typically turning out fewer than 10 ­barrels of oil a day. Along the highway running through Cushing, there is a small-scale oil well incongruously ­positioned in the backyard of a small printing firm.

In Cushing's high street, a few hints of prosperity are appearing between pawn shops and cheque-cashing offices. A modern Mexican restaurant, Nuevo Vallarta, has appeared. The investment chain Edward Jones has opened an impressively refurbished office.

Nursing a drink in the town's Buckhorn bar, local resident Larry Roe said Cushing used to be a "ghost town" but property prices are on the up and unemployment has shrunk.

"Back in the 90s, when oil had gone to hell, you might have had 20 cars parked out there on Broadway," he says. "Now there are four or five times that number."

Rick Reiley, the town's director of downtown development, is cautiously positive: "The last three or four years have been the first time in a number of years that things seemed to be working to our benefit as a community."

He is fatalistic, however, about the cyclical nature of the business: "We're an oil town — we've been an oil town for a hundred years. We know there are ups and downs and we try to prepare ourselves for the downs."