It’s no secret that oil prices are at some of the lowest values we’ve seen in years. But for one oil buyer from North Dakota, the commodity is so worthless, that it is requiring sellers to pay them to take a certain type of low-quality crude oil off their hands. America has finally reached the point of negatively priced oil.
Flint Hills Resources LLC has listed its price for North Dakota Sour at -$0.50. The company actually expects to receive $0.50 when they “purchase” a barrel of the high-sulfur crude oil. Flint Hills Resources serves as the refining branch of billionaire brothers Charles and David Koch.
Just one year ago, a barrel of North Dakota sour cost $13.50. In January of 2014, it cost $47.60. The current negative price reflects the lack of pipeline capacity for this particular variety of ultra-low quality crude oil.
Still, even if the oil is of the poorest of quality, the negative price demonstrates just how bad things have become in the oil industry. Over the past 18 months, benchmark oil prices in the United States have fallen more than 70%.
The president of Lipow Oil Associates LLC Andy Lipow said, “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.”
Prices for a standard barrel of oil are currently trading at slightly more than $28, representing the lowest prices since 2003.
High-sulfur oil is typically regarded as the poorest-quality of oil because they must be processed at plants with specialized equipment that is designed to remove the sulfur.
Although negative commodity prices are rare, they are not unprecedented. In Canada, propane actually reached a negative value for about three months last year. Of course, when there’s no money to be made, many refineries simply close up shop. We could be seeing that very quickly with oil producers.