http://www.zerohedge.com/news/2016-01-18/negative-oil-prices-arrive-koch-brothers-refinery-pays-050-north-dakota-crude
Do you have some extra space in your
garage or attic? Or perhaps you own an oil tanker you aren’t currently
using. Or maybe you have a storage unit that’s got a little extra room
next to an old mattress and box springs.
If so, you may want to call up oil producers in North
Dakota and ask if they’d care to send you some free oil, because the
crude glut is now so acute that the Koch brothers are actually charging $0.50/bbl to take low grade oil at their Flint Hills Resources refining arm.
North Dakota Sour is a high-sulfur grade of crude and “is a
small portion of the state’s production, with less than 15,000 barrels a
day coming out of the ground,” Bloomberg notes,
citing John Auers, executive vice president at Turner Mason & Co.
in Dallas. “The output has been dwarfed by low-sulfur crude from the
Bakken shale formation in the western part of the state, which has grown
to 1.1 million barrels a day in the past 10 years.”
High-sulfur grades are more expensive to refine and thus
fetch lower prices at market. As Bloomberg goes on to note, “Enbridge
stopped allowing high-sulfur crudes on its pipeline out of North Dakota
in 2011, forcing North Dakota Sour producers to rely on more expensive
transport such as trucks and trains [and] the price for Canadian bitumen
-- the thick, sticky substance at the center of the heated debate over
TransCanada Corp.’s Keystone XL pipeline -- fell to $8.35 last week,
down from as much as $80 less than two years ago.”
So there you have it. The global deflationary supply glut has now reached the point that the market is effectively forcing producers to pay
to give their oil away or else see it sit in bloated storage facilities
until Riyadh decides enough is enough and until the world comes to
terms with the return of Iranian supply. In other words, for some US
producers the business isn't just loss making, it's an exercise in sadomasochistic futility.
Meanwhile, MLP Plains All American is quoting Colorado
Southeastern, Nebraska Intermediate, Eastern Kansas Common Special, and
Oklahoma Sour at just $16.50/bbl, $16.00/bbl, $12.20/bbl, and
$13.50/bbl, respectively.
The message for the Wells Fargos and Citis of the world: you're going to need a bigger loan loss reserve.
It's no wonder the Dallas Fed suspended mark-to-market on energy debts - there's no market to mark to.
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