The oil market is so glutted in North Dakota that one refiner says it needs to be paid to take crude from oil companies.
Flint Hills Resources LLC claimed Friday it would pay -50 cents for a barrel of North Dakota Sour, which is high-sulfur grade crude oil, according to a post on the company’s website.
High-sulfur grade oil is typically priced at a lower rate than most crude because the high sulfur content can only be extracted using special equipment, a technique which contributes to the high transportation costs needed to get crude to consumers.
North Dakota is not the only state seeing basement-level, high-sulfur grade fuel prices.
According to Canada-based oil transporting, refining and storage company Plains All American Pipeline, there two other low-quality crude varieties seeing similarly low prices: Texas Sour and Oklahoma Sour saw their prices pegged by the company at $13.25 a barrel and $13.50 a barrel, respectively.
Flint Hills’ decision to get paid to take oil indicates that the oil market is falling down an abyss, and one that may not see a bottom any time soon. According to Bloomberg Business, oil price have tanked by more than 70 percent in less than 2 years, and by more than $30 a barrel in the past 3 months.
“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 Lipow Oil Associates LLC in Houston, told reporters at Bloomberg Business.
Nearly 15,000 barrels a day of high-sulfur grade oil, called “sour” crude because of its relatively high sulfur count, is pumped from the ground in North Dakota, John Auers, executive vice president at Turner Mason & Co. in Dallas, told reporters.
“You don’t produce stuff that’s a negative number,” Auers added. “You shut in the well.”
Yet, sour crude is a relatively small slice of the state’s overall oil production, Auers notes. Oil companies have pumped 1.1 million barrels high quality low-sulfur grade crude from North Dakota’s Bakken shale formation over the past ten years.
Flint Hills’ decision to demand producers pay them for cheap oil comes after oil prices continue to spiral downward. Crude oil sold by the Organization of Petroleum Exporting Countries (OPEC) fell to$25.69 last week. Oil was selling for more than $100 per barrel in 2014.
The rock bottom oil prices are causing consternation among oil producers as well.
“We’re dying on the vine,” Skip Homeier, the president of oil company Bi-Petro Inc., an oil company running 150 oil wells in Illinois, told Wall Street Journal reporters last week. Oil in Bi-Petro’s region — Illinois — has cratered below $30 in December.
“When oil was at a $30 to $35 barrel, I had more wells making money,” Homeier added. “Now, I have to look at oil down to $23 a barrel.”
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