Oil is now cheaper than the barrels used to transport it. As the price of crude continues to drop, consumers are getting a break at the pump, while producers are struggling to survive in a business that is, in some cases, worth less than nothing.
Such was the case with North Dakota sour, a type of high-sulfur crude oil coming from the state’s shale fields. Flint Resources LLC, owned by the billionaire Koch brothers, posted a price of -50 cents for a barrel on Friday, according to Bloomberg Business. On Monday, the company revised the price to $1.50 a barrel, claiming the negative value had been a clerical error.
Refineries usually pay a lower price for the high-sulfur crude, which is extracted from the shale fields through hydraulic fracturing (or fracking), because it requires special processing equipment to remove the sulfur. A year ago, a barrel of the same oil sold for $13.50 a barrel, while in January 2014 it sold for $47.60.
At the same time, the price for Canadian bitumen, extracted by fracking from oil sands in Alberta, plunged to $8.35 last week, down from $80 two years ago.
The international Brent index dove below $30 last week, on news that the UN sanctions against Iran were to be lifted. Crude traded at $28 a barrel on Monday, before rebounding to just over $29 on Tuesday afternoon.
By comparison, actual steel barrels that oil is stored and transported in can cost anywhere between $55 and $99 apiece.
A barrel of WTI crude is 3 times cheaper than a steel drum to put it in. pic.twitter.com/1mSqx51SlS
— Patrick DeHaan (@GasBuddyGuy) January 14, 2016
At these prices, it is becoming outright unprofitable to continue operations at many US oil wells, which rely on relatively expensive fracking techniques to extract the oil from shales and tar sands.
“You don’t produce stuff that’s a negative number,” John Auers, of the Dallas-based Turner Mason & Co., told Bloomberg Business. “You shut in the well.”
While oil producers are feeling the pain, however, drivers in the US are finding relief at the pump. The average US price of a gallon (3.7 liters) of gasoline is $1.87 and dropping. In California, the state average was just under $2.75 a gallon, with some places selling gas for as low as $2. In New York, the average was $2.15, and the lowest price at the pump was $1.51. Drivers in Texas could fill up at $1.66 a gallon, or $1.29 if they were lucky.
Price wars between gas stations are driving the price down even further. In the northern Michigan community of Houghton Lake, one station was selling gas for as low as $.47 a gallon.
— Patrick DeHaan (@GasBuddyGuy) January 18, 2016