The flood of oil inundating the U.S. Midwest is about to cascade down to the Gulf Coast.

Bulging inventories at tanks in Cushing, Okla., the country’s biggest storage hub and delivery point for U.S. benchmark futures, have made oil there the cheapest in more than a year compared with crude in Louisiana.

Traders have more incentive to move crude to the Gulf as the price difference widens enough to cover the cost of transport. The Gulf Coast will be a more attractive destination as storage space in Cushing fills up and becomes more expensive, according to Genscape Inc.

“We’re reaching a rebalancing point here,” said Carl Larry, head of oil and gas for Frost & Sullivan LP in Houston. “We’ve had a huge build of supplies in Cushing, and out of necessity it’s going to start coming to the Gulf Coast.”

Oil inventories in Cushing have more than doubled since the beginning of October to 48.7 million barrels (MMbbl) as of Feb. 20, according to data from the Energy Information Administration. That’s about 3.2 MMbbl less than the record set in January 2013.

Contango Play

At that time, supplies built because there was only enough pipeline capacity to ship 150,000 barrels a day (bbl/d) from Cushing to the Gulf Coast, not enough to handle surging crude supplies from shale fields and Canada’s oil sands. Companies like Enbridge Inc. and TransCanada Corp. have since added to create more than 1.5 MMbbl/d of shipping capacity between Cushing and Texas.

The current supply build’s cause is financial, said Brian Busch, director of crude markets and business development for Genscape Inc., a Louisville, Ky.-based energy information firm.

Global crude supply is outpacing demand, creating a market condition known as contango, in which prices now are lower than in the future. The premium for West Texas Intermediate futures delivered a year from now rose to $12.32/bbl over those for nearby delivery on Feb. 26, the highest level in more than four years.

Traders have taken advantage by storing crude to help lock in profit from the future premium. As tanks fill, the remaining space is becoming more expensive. Busch said he has heard that storage owners in Cushing are asking for $1/bbl per month now, up from 40 cents in the fall.

Rising storage costs would eat into potential profit margins from a contango play and turn traders’ attentions south.

“Is the cost of storage going up to the point where you’ve taken storage economics out of the equation?” Busch asked. “When that happens, then all the Cushing barrels are going to naturally flow to the Gulf Coast.”