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Page added on January 18, 2016
Oil Sold for -$0.50 per Barrel. A Negative Price!
The oil markets are on edge with oil sinking into the $20s per barrel. And last week we reported on one place where oil is already trading in the single-digits. Canada’s bitumen is selling for just $8 per barrel.
But even that rock bottom price is higher than what one oil seller earned for a shipment recently. In a bizarre turn of events, Bloomberg reported that Flint Hill Resources, a refining unit owned by the Koch brothers, said that they would purchase sour crude from North Dakota for $-0.50 per barrel.
That’s right: a negative price. Oil has become so depressed that producers are paying buyers to take oil off of their hands.
How can the oil price go negative? This specific type of crude is suffering from a perfect storm of bad news. Obviously, most of the blame has to do with WTI dropping to its lowest level in more than a decade. But the type of crude that Flint Hills is purchasing is sour, which means it has a high-sulfur content. That requires a different type of refining and thus fetches a lower prices. And more importantly, North Dakota Sour has a shortage of pipeline capacity, which further pushes down prices.
Enbridge, for example, does not allow North Dakota Sour on its pipeline system. As a result, North Dakota producers of the high-sulfur blend have had to find other ways to export their product out of state since 2011, often relying on expensive routes such as rail or trucks. That makes their oil even less competitive.
To be sure, North Dakota sour only makes up a small share of the state’s oil output – only around 15,000 barrels per day. Most of the shale oil in the Bakken is sweet, or low in sulfur.
But for sour producers that have always sold their oil at a discount, the collapse of WTI has pushed their prices into negative territory. They are now having to pay buyers to take their oil.
“Telling producers that they have to pay you to take away their oil certainly gives the producers a whole bunch of incentive to shut in their wells,” Andy Lipow, president of Houston-based Lipow Oil Associates LLC, told Bloomberg.
17 Comments on "Oil Sold for -$0.50 per Barrel. A Negative Price!"
HARM on Mon, 18th Jan 2016 5:57 pm
Sure, they may be losing money on every sale, but they’ll make up for it in volume!
HARM on Mon, 18th Jan 2016 5:59 pm
Have to admit, temporary or not, the oil glut is lasting way longer and prices are going way lower than I would have imagined even 6 months ago. Looks like the peak has been called off for a couple years at least.
twocats on Mon, 18th Jan 2016 6:31 pm
Have to admit, temporary or not, the oil glut is lasting way longer and prices are going way lower than I would have imagined even 6 months ago. Looks like the peak has been called off for a couple years at least. [HARM]
I think a better way to phrase it might be, “We won’t know if we’ve hit peak oil for a couple years at least.”
Unless of course you are referring to the possibility that Iran coming online will drive us into a new short term peak. This is possible. Are we 500k below the near term peak?
Either way, these prices have very little to do with the cost of oil, and everything to do with the cost of keeping the global economy from ripping itself apart, which has everything to do with the cost of oil.
HARM on Mon, 18th Jan 2016 6:45 pm
This is from a few months back, but I don’t see any evidence that oil production has peaked yet –far from it.
http://wallstreetexaminer.com/wp-content/uploads/2015/07/M74021001290471000094034474492.gif
We’re still at ~5 MBPD above what many consider to be the “conventional” crude peak bumpy plateau from ’04-’09. Yes, as expensive fracking and tar sands producers go bust, overall numbers will also fall, but that’s still not showing up much in the global supply numbers.
Outcast_Searcher on Mon, 18th Jan 2016 6:57 pm
Earth to author: a negative bid doesn’t mean anything was sold unless the offer is accepted. As the article says at the end, if the market determines that this stuff is worthless at current crude prices, the production will be shut in.
(If an offer constituded a sale, I’d buy a TON of “one cent” stocks like IBM tomorrow (by offering a penny a share), and become a billionaire overnight (next day settlement on stock trades). Somehow in the real world, things don’t work that way).
Of course on this site, wildly misleading titles, articles, and especially claims are made about economics constantly, so why bother to be accurate. Right?
Here’s how this story was recently reported on a more responsible news site: Bloomberg, early this morning:
http://www.bloomberg.com/news/articles/2016-01-18/the-north-dakota-crude-oil-that-s-worth-less-than-nothing
Oil is so plentiful and cheap in the U.S. that at least one buyer says it would pay almost nothing to take a certain type of low-quality crude.
Flint Hills Resources LLC, the refining arm of billionaire brothers Charles and David Koch’s industrial empire, said it offered to pay $1.50 a barrel Friday for North Dakota Sour, a high-sulfur grade of crude, according to a corrected list of prices posted on its website Monday. It had previously posted a price of -$0.50. The crude is down from $13.50 a barrel a year ago and $47.60 in January 2014.
Plantagenet on Mon, 18th Jan 2016 7:03 pm
Once there was a oil glut
So oil prices were cut
Until they fell below zero
oil was cheaper than beer-o
And oil drillers were no longer heroes.
Cheers!
twocats on Mon, 18th Jan 2016 7:05 pm
http://peakoilbarrel.com/all-roads-lead-to-peak-oil/
minus 574k as of October per Ron. i mean, its a bit of hair slicing, certainly production is not dropping nearly as much as what most thought it would by now.
Nony on Mon, 18th Jan 2016 7:20 pm
Cool story, but they should have done a bit more reporting. Who makes that product in ND and are the wells shut in or not? At least make a call to Helms.
geopressure on Mon, 18th Jan 2016 7:23 pm
Twocats: “certainly production is not dropping nearly as much as what most thought it would by now.”
What the EIA Reports the production to be is not dropping as fast as what logic would dictate…
What is actually coming out of the ground, now that is a whole different story…
makati1 on Mon, 18th Jan 2016 8:58 pm
A few days ago, I joked that buyers may actually be paid to take oil.
Reality is a bitch! LOL
sidzepp on Mon, 18th Jan 2016 9:37 pm
http://www.wsj.com/articles/venezuelan-president-declares-economic-emergency-1452902581
http://www.bbc.com/news/world-europe-30492505
One factor in the continual drop in prices of oil is the impact that it has on energy rich states such as Russia and Venezuela. Both countries are dependent on the revenue to keep the machinery of their respective governments running. Economic hard times and the resulting chaos that develops allows the U.S. and other western nations to engage groups that could possibly take over the governments and be more favorable to us. It is neo-colonialism at its best. Of course it could produce the opposite. A cornered tiger is a very dangerous animal.
twocats on Mon, 18th Jan 2016 9:39 pm
Im convinced attacking isis Oil was an end around to oil dumping. Now we start dumping the heavy sulfur stuff.
Go Speed Racer on Tue, 19th Jan 2016 12:35 am
I’d take a barrel. With the 50 cents I get on the sale, then I’ll buy a candy bar. Then I’ll throw some free furniture and mattresses from Craig’s List, into the backyard and dump the barrel of oil all over it. The propane torch will light ‘er up. Fun for the whole family.
GregT on Tue, 19th Jan 2016 1:15 am
“Economic hard times and the resulting chaos that develops allows the U.S. and other western nations to engage groups that could possibly take over the governments and be more favorable to us.”
Mostly agree sidzepp, except for the ‘us’ part. The middle class in the “U.S. and other western nations” will also continue to be robbed blind, along with the people from all other countries the world over.
Their plans do not include ‘us’. Winner takes all. Nothing personal, just business.
twocats on Tue, 19th Jan 2016 1:50 am
Mish sums up the bankruptcy, loan losses, contagion issue:
“Regardless of what Kaplan [Dallas Fed head] instructed the banks to do, bankruptcies cannot be avoided by selling assets.
Sell what assets? At what price?
The assets in question are rigs, land, and drilling rights. What demand is there for used rigs? And what near-term value do energy properties have at current energy prices?
Oil reserves and the value of those reserves have both collapsed.
Bankruptcies are coming and with them so will loan losses. Either loan loss provisions rise now, or bankruptcies impose unannounced losses in the not so distant future.”
and then later,
“Rather, the real story is rising loan and lease loss provisions, across numerous segments, not just energy.
I expect loan loss provisions for housing, construction loans, subprime autos, credit cards, malls, and of course energy, will all rise.
This is a significant turning point. Loan and lease losses have only one way to go: Up. How high remains to be seen, but the effect on earnings won’t be pretty.”
He also adds, “Losses related to energy, whatever they may be, will be much smaller than losses related to the housing bubble crash.” but I think that is referencing only Citi Bank. Either way, that’s a key point, and one I haven’t seen a definitive answer on.
Read more at http://globaleconomicanalysis.blogspot.com/2016/01/rumors-on-mark-to-mark-accounting-and.html#j0JU8jiMTLkVH3UG.99
onlooker on Tue, 19th Jan 2016 3:27 am
In a world of overpopulation with dwindling resources, the American Middle class is a luxury the elite cannot afford. Their nature is to exploit and they will exploit anything and anyone to remain in their privileged positions. So yes the us is a very exclusive club, very VIP.
makati1 on Tue, 19th Jan 2016 7:15 pm
sidzepp, energy(oil) sales is 17% of the Russian GDP. How is that having a great effect on their economy? Yes, they are down about 10% because of oil prices and US illegal actions, but that isn’t a death sentence, just stress. Nothing new to Russians. They are still upgrading their nukes and military and killing ISIS in Syria.
If I were you, I would be much more concerned about the collapse of the middle class in the Us and the continual slide into the 3rd world and a growing police state there.