Koch: Less than zero for N. D. crude
Oil is so plentiful and cheap in the U. S. that at least one buyer says it would need to be paid to take low- quality crude.
Flint Hills Resources LLC, the refining arm of billionaire brothers Charles and David Koch’s industrial empire, said it would pay -$ 0.50 a barrel Friday for North Dakota Sour, a high- sulfur grade of crude, according to a list price posted on its website. That’s down from $ 13.50 a barrel a year ago and $ 47.60 in January 2014.
While the negative price isduetothe lack of pipeline capacity for aparticular variety of ultra- low- quality crude, it underscores how dire things are in the U. S. oil patch. U. S. benchmark oil prices have collapsed more than 70percent in the past 18 months, and West Texas Intermediate for February delivery fell as lowas $ 28.36 abarrelonthe New York Mercantile Exchange on Monday, the least in intraday trade since October 2003.
“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 theirwells,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston.
Flint Hills spokesman Jake Reint didn’t respond to a phone call and e- mail outside of work hours Sunday to comment on the bulletin.
High- sulfur crude in North Dakota is a small portion of the state’s production, with less than 15,000 barrels a day coming out of the ground, said JohnAuers, executive vice president at Turner Mason & Co. in Dallas. The output has been dwarfed by low- sulfur crude from the Bakken shale formation in thewestern part of the state, which has grown to 1.1 million barrels a day in the past 10 years.
Different grades of oil are priced based on their quality and transport costs to refineries. Highsulfur crudes are priced low because they can be processed only at plants that can remove sulfur. Producers and refiners often mix grades to achieve specific blends, and prices for each component can rise or fall to reflect current economics.