Jan 21, 2016

Ultra low quality North Dakota crude oil re-priced at $1.50 per barrel, up from negative number

Flint Hills Resources LLC, owned by billionaire brothers Charles and David Koch, originally asked producers in North Dakota's Bakken formation to pay the company to take shipments of a certain type of low-quality crude, Dan Murtaugh and Javier Blas report for Bloomberg. The company, which last week posted a price of -$0.50 per barrel, said the negative price was incorrectly posted and raised the price to $1.50 per barrel. The crude is down from $13.50 per barrel a year ago and $47.60 in January 2014. 

"While the near-zero price is due to the lack of pipeline capacity for a particular variety of ultra low quality crude, it underscores how dire things are in the U.S. oil patch," Murtaugh and Blas write. "U.S. benchmark oil prices have collapsed more than 70 percent in the past 18 months and fell below $30 a barrel for the first time in 12 years last week. West Texas Intermediate traded as low as $28.36 in New York. Brent, the international benchmark, settled at $28.55 in London." 

"Different grades of oil are priced based on their quality and transport costs to refineries," reports Bloomberg. "High-sulfur crudes are generally priced lower because they can only be processed at plants that have specific equipment to 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." While negative prices are rare, they aren't unheard of. "Oil refineries sometimes pay people to take away low-demand products such as sulfur or petroleum coke to free up space."