Koch: Less than zero for N. D. crude

The Denver Post - - BUSINESS - By Bloomberg News

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.

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