Negative Oil Prices Arrive: Koch Brothers' Refinery "Pays" -$0.50 For North Dakota Crude

Tyler Durden's picture

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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yrad's picture

What goes around comes around, kid.

freewolf7's picture

Shut up and take my oil.

Dubaibanker's picture

It is not just the oil for free, even airlines have free flights now....

Oman Air in free flights promotion 

I wonder what else in this world is available for free today? Even 90% discount will do....

    red red wine's picture

    USSA succeeding in BK'ing foreign oil producing countries and their currencies....

    Venezueala, Libya, iraq, Iran, Russia, Canada, Mexico and the rest of the Middle East.

    this is WW#3 as we speak

    Fukushima Sam's picture

    Hopefully this will kill Berkshire Hathaway's stock as the rate for train freight plummets.  Poor Lord Buffet!

    Pinto Currency's picture



    Saudi/Exxon/CIA allegedly crashing oil as weapon:

    Will fail.

    MasterControl's picture

    You forgot the /Obama/ in there.
    Oh wait, I forgot Obama is just a helpless "puppet" caught up in the evil neocons game....

    Pinto Currency's picture



    “Look how many countries in Africa, for example, depend on the income from oil exports,” Schwab said in an interview ahead of the WEF’s 46th annual meeting, in the Swiss resort of Davos. “Now imagine 1 billion inhabitants, imagine they all move north.”

    JamesBond's picture

    Should I take this to mean that all U.S. strategic oil reserves are busting at the seams?  




    troubledasset's picture

    We've talked to traders in the region and this story is bogus.

    jcdenton's picture

    I suggest the traders you talked to are either uninformed or simply lying ..

    I know someone personally working in the Permian Basin. Myself, I was on a frack crew in the Eagle Ford region in 2010. Iran can produce at $1 per barrel. Imagine what its street price will be at the pump. So don't blame the Saudis here. (We can blame them for much bigger things. Like complicity with 9/11) We can blame Iran, only insofar as this is payback/blowback for Tehran in '53. Payback can take time. But, boy can it be a bitch when it arrives (especially when backed via Russian military muscle.)

    Marco's picture

    So either Europe does the "impossible" and does not just hand out passports to anyone with a sob story or Europe turns into an extension of Africa (ie. one giant failed state).

    DeathMerchant's picture

    Didn't he mean, "Imagine us being stupid enough to let them move north" ???

    scraping_by's picture

    Barry's a spokesman. Do you think that Aussie lizard makes decisions about the insurance business? /s

    El Oregonian's picture

    I have a few empty teacups lying around that I would be willing to rent out cheap for storage. Call me. 801-555-6757

    northern vigor's picture

    It's going to kill Uncle Buffy's Wells Fargo before his choo-choos. 

    Save_America1st's picture

    crazy...I'm hearing though that in 5 years or so this is going to reverse...the oil glut will have run it's course and we'll be back to shortages and 150+ prices per barrel. 


    NoDebt's picture

    We're not done beating the peak oil guys to a bloody pulp yet.  When our arms get tired of swinging the bat against their heads maybe we'll listen to what they have to say again.

    drivenZ's picture

    It will reverse. It always does. It's the classic boom and bust cycle of many volatile markets.  Driven by high oil prices and expectations of China continuing max growth into perpetuity------> billions were spent on E&P the last 10 years, high cost oil became profitable to drill, OPEC needs $,  and all of sudden you have a glut. Markets turn bearish, Prices fall, E&P is slashed, rigs and wells shuttered, high cost producers go out of business ----> then people use more oil because it's cheap, infrastructure and companies are built around cheap oil, excess oil is worked off, World GDP creeps back up and all of a sudden markets turn and it takes a lot of lead time to bring new oil back online, leading to a shortage and you're back at $100 oil.  It goes around and around, it will be no different this time. 

    MSimon's picture

    The frequency of the cycle depends on the delay. From start of drilling to production = 2 years you get long cycles. If the delay is 3 months you get shorter cycles. The shorter cycles will be less violent.


    Fracking = 3 months.

    Marco's picture

    That smooths out volatility as long as most oil still comes from conventional wells.

    If we ever get to the point that most oil has to come from fracking the tail end is going to get rather violent.

    cheeseheader's picture

    Not necessarily disagreeing, but by then what is the state of the electric/hybrid auto industry?


    Full disclosure, I drive by a Tesla dealer every day, and I fantisize of crashing through the front window....

    reinhardt's picture

    free shipping was all the rage - the night before xmas


    KnuckleDragger-X's picture

    With EPA reg's on sulfur, I'm surprised they take it at all. It's pushed into the pipe with all the other oil, and somebody has to do something with it...somewhere.......

    Chris Dakota's picture
    Chris Dakota (not verified) yrad Jan 18, 2016 10:24 AM

    Obama wanted to gut shale industry.

    Domestic oil production makes us more sovereign.

    The NWO bastards don't want that.

    GMadScientist's picture

    Or...shale expanded too fucking fast under sloppy monetary policy, doesn't have sound fundamentals, and world realpolitik just showed it what gravity feels like for the first time.

    Your shitty EROEI is not my fucking problem and waving your hands around and shouting "nigger", just makes you look like a dumbfuck.

    Chris Dakota's picture
    Chris Dakota (not verified) GMadScientist Jan 18, 2016 10:44 AM

    Where did I shout nigger?

    YOU are shouting it not me.

    Ya crazy kook.

    4 wheel drift's picture

    if you say anything against the muslim....   his arse kissers say you are a racist....


    Arnold's picture

    I believe Sand Nigger is the proper term.

    o r c k's picture

    If you say the word "muslim" in Europe you're tagged with a Sharia death sentence. The joy of Islamophobia.

    MasterControl's picture

    At zero hedge Obama is just a "puppet"
    If you don't agree its the same as callign him a "nigger". 

    Chris Dakota's picture
    Chris Dakota (not verified) MasterControl Jan 18, 2016 11:56 AM

    And Bush was not a puppet.

    All failed democrats are puppets, so they want elect a new puppet Bernie or Hillary.


    GMadScientist's picture

    Because Presidents can't "declare war" on a fucked economy (in no small part, due to the jackass you voted for twice and are defending now) in the same way they can send troops to waste blood and treasure implementing regime change and enabling the fucked up mess that is the middle east today?

    When you stop looking for blame outside yourself and start making congress do congress job, you'll get a great deal more accomplished. It seems you prefer beating up strawmen and concocting idiot conspiracy more than solving problems.

    Hold Obama accountable for the things he has fucked up.

    Niall Of The Nine Hostages's picture

    He didn't want to destroy it exactly. Wall Street need a plan B once Saudi runs out of oil in 15 years.

    They just want to make sure the right people (themselves) control the oil, from San Antonio to Siberia.

    They don't want anyone to be sovereign, not Russia, not Texas, not anybody.

    The plan is:

    1. Saudi dumps oil.

    2. Russia runs out of cash, Putin is overthrown.

    3. Wall Street vultures snap up North American and post-Soviet oil for pennies on the dollar.

    4. Saudi runs out of oil and prices return to realistic levels.

    5. Vultures contribute a portion of their winnings to Barry's library and Malia's first congressional campaign.

    laser's picture

    Try Putin defaults, West suffers.

    GMadScientist's picture

    Or....there's just no demand there and using xerox copies of money to speculate has been unmasked for the ruse it always was.

    drivenZ's picture

    ah yes, it's Obama's fault when shale booms under his watch and it's now Obama's fault when shale busts under his watch. let me guess, youre voting for Trump? The working mans billionaire, haha. 

    MasterControl's picture

    Douchebags cucks like you are the reason I am looking foward to the coming darkness.

    drivenZ's picture

    so you're voting for Trump as well? coming darkenss? you mean the one ZH has been saying is coming any day now for 9 years? the inflationary death spiral? or was it the deflationary death spiral? the death of all currency but precious metals? WWIII? the collapse of housing? the collapse of global banks? the collapse of global central banks? the collapse of emerging market equities? the collpase of developed market equities? Proxy war with Russia in Syria?  no no, now it's the collapse of oil?   


    stupid people have short memories. You realize all of the same doomsday fear mongering vomit has been spewed by all sides every decade of every century of man? Remember the cuban missile crisis? Vietnam? gas shortages in the 70's? WWII, September 11, the Civil rights movement, etc. etc.  Do things happen? yes. do people die? yes. Does the world go on? yes. Doomsday may happen but it's not in your lifetime (especially if you have enough $ to be on the internet).  

    azusgm's picture

    Normalcy bias is not always your friend although it is comforting.

    Tall Tom's picture

    I do not fear doomsday.


    Why do you write of it as a fear?


    I embrace it. I celebrate it.


    I will do my best to help realize it.


    Nothing can please me more than watching the Fraud and Corruption destroyed.




    No. Actually I am just spreading the message of hope.


    It is yu who fear the end of the present paradigm as it will cost you your comfort, your lifestyle...if not your life.


    When I write that I want it to burn into ashes it is an UNDERSTATEMENT.


    My fear is that there is no escape from your boot pressed into my face. But I not only have hope as I have a plan of action.


    Do people die? Yes.


    Think about that. You wrote it.


    But I cannot do this alone...I need an army.


    See I like Thermite and Gas Meters on the sides of homes....and banks.


    I like that it will cut through the caps of feeder pipes to the underground Gasoline Storage Tanks at every Gas Station in America.


    It will be a blast, you know?


    I like that it can cut through Armored Personnel Carriers...or Tanks, setting the insides ablaze and roasting the occupants.


    Who needs a Molotov Cocktail when Thermite is so much more efficient?


    I like the fact that I live in a de facto open air prison, a felon dump, filled with angry and motivated convicts who can learn about using this simple tool of destruction, an ARMY of sorts.


    See. Your society...They already have provided me with an ARMY. (That was actually thoughtful of them....I must admit.)


    They can be easily armed with Flamethrowers. Body Armor melts to flesh.


    And they will give me even more to educate if they throw me in a cage.


    Why should I not give the same education to Felons as I did to Universiy students?


    Thank you for the additional incentive.


    I find that there is hope in my words....with the plan in effect.


    I like Asymettric Warfare. Thank you US Military.


    Do you fear an army of educated felons? You should.


    Anything that I can do to help out...


    Reichstag Fire Dept.'s picture

    Most of you guys are Americans so I'm going to type this slowly...

    ALL of the over supply of oil on the market is American oil, okay...until the USSA helped get Iran fired back up and producing again! That's your proof that Obama is crashing the oil market to attempt to bankrupt Russia and others. Only problem, it's bankrupting Canada...thanks Obama!

    American oil vis-a-vie Obama's Energy Independence Plan is the "new" oil on the market. Just becaause Saudi Arabia and the UAE doesn't want to cut production to save market share doesn't make the price crash their you really expect a one trick pony to NOT do his only trick?

    I would go so far as to suggest that all of this billions being dumped into "global warming" is going directly to paying US producers to keep producing oil that isn't worth producing at the moment.

    EddieLomax's picture

    It is true that the majority of new oil on the market the past few years has come from the US, while at the same time high prices have caused a lot of demand destruction masking the weak oil growth elsewhere.

    So it is one reason why I've been a bit frustated with the whole "Saudi's flooding market" story since it has no basis in reality.  It is terribly convenient too that the US oil patch has in theory a link all the way to the fed and thus unlimited funding.  I would dismiss it as tin foil hat thinking, but then they are getting involved with the suspending mark to market and other interventions, I also remember that there are plans for future oil sales from the SPR, I wonder if these will just happen to occur in time to prolong the current depressed prices?  A lot of coincidences there.

    The bounce back from this (possible) market tampering should be very interesting to watch, although in the meantime I'm going to make sure I book some cheap flights next year :D

    Reichstag Fire Dept.'s picture

    It's actually worse than JUST new American oil on the market. The US consumes something like 24% of world oil...when they produce their own barrel of oil that's a barrel of oil they are NOT buying somewhere else in the world...and that's US$100 (now US$30.oo) that is NOT going towards some other county's foreign currency reserves...foreign currency reserves that other countries count on to limit their US$ exposure in other areas.

    So, in round numbers, there's 24% demand desruction plus the oil that the US can now export. Add this to the new oil Iran is going to sell because they expect to have to pay for a very expensive war with (probably) Saudi Arabia. Iran and Saudi Arabia will now sell oil at any price.

    For all we know what's at risk here is the world finding out the truth about oil being abiotic. Oilfields, are replentished from the core of the earth, new oil being forced to the surface from below. There is virtually an unlimited supply.

    If anyone thinks the Russians are going to be broken by this (financial) problem with oil doesn't know their Russian history very well. The so called "isolation" Obama is trying to impose on them is actually helping Russia. They are surviving off of their own production now. That's one of the reasons Putin took Crimea, it is some of the best farm land there is left in the region! Let Ukraine import food from Europe and put a load on their supply! Putin ain't cutting them any deals on a loaf of bread.

    Gargoyle's picture

    If you're going to be all sophisticated, like a real Canadian, you should learn how to spell "vis a vis", you smarmy cunt.

    itstippy's picture

    "Obama wanted to gut shale industry."

    What???  Obama claimed credit for the booming U.S. shale oil industry the same way Al Gore claimed credit for the internet.  Obama whipped his cheering crowds into a frenzy with claims that the U.S. would soon be energy independent.  He touted the high-paying American jobs he created for hard-working Americans.

    The U.S. has considerable reserves of $100-a-barrel oil.  We have no reserves of $30-a-barrel oil.  Tell the Chinese to start buying oil on the open market at $100 per barrel again and maybe domestic shale oil will recover.  U.S. refineries aren't going to buy domestic shale oil if they can get it cheaper elsewhere.  It's called competition in a global marketplace. 

    BullyBearish's picture

    Just a heads up, December 1998 WTI was $10.49 a barrel...that's a FURTHER 63% drop!!! 

    drivenZ's picture

    inflation adjusted is closer to $15/ won't drop that low though.  Despite China's slowdown, they're still  growing at an above average clip compared to the rest of the world and using 3x more crude than in the 90's. 

    azusgm's picture

    Stimulate crude oil demand -- buy plastic junk from China.

    MrNosey's picture
    MrNosey (not verified) yrad Jan 18, 2016 10:47 AM

    Don't worry about negative oil prices, as there will be no real recovery what so ever!

    The elite will soon run and hide in the bunkers paid for with citizens taxes, after engineering a full economic collapse as well as starting WW3, plus they will make sure that there are enough Jihadi's in the West to start a race war.

    That should be enough to cover up the failed fiat ponzi scheme and take care of the 'excessive' population......