The oil market is awful enough that the Koch brothers were recently able to purchase oil at a negative price point of -$0.50
While some oil markets are selling near $20 per barrel, Canada’s bitumen is selling for just $8 per barrel and for other’s the oil glut is causing different but significant issues.
Flint Hill Resources, a refining unit owned by the Koch brothers, recently announced that it was selling the brothers sour crude from North Dakota at a loss, according to Bloomberg.
So how does a company sell oil at a loss? The company’s particular type of crude is sour, that means it contains a high-sulfur content which requires a specialized type of refining and therefore requires a lower sale price.
Flint Hill Resources is also pumping out North Dakota Sour which has a shortage of pipeline capacity, which further pushes down prices.
Enbridge, for example, does not allow North Dakota Sour on its pipeline system. As a result, North Dakota producers of the high-sulfur blend have had to find other ways to export their product out of state since 2011. That makes their oil even less competitive as they utilize trucks and trains to move their product.
North Dakota sour only produces around 15,000 barrels per day — a very small percentage of the state’s overall total.
Since sour oil producers have always sold their oil at a discount, the collapse of the WTI has pushed their prices into negative territory. Because they have to move their inventory, they are literally paying buyers to take it off their hands.
“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 Houston-based Lipow Oil Associates LLC, told Bloomberg.