Texas Oil at $ 2 a barrel increases the spectrum of negative prices

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(Bloomberg) – Crude oil prices in the United States are dangerously close to zero.

Buyers of crude oil in Texas, the birthplace of the shale revolution, are offering as little as $ 2 per barrel for some oil flows, a steep drop from last month. The collapse in the value of physical barrels increases the possibility that producers in Texas may soon have to pay customers to take their crude oil.

Negative prices have already reached more obscure corners of the US oil market in the midst of a bearish trifecta of collapsing demand, swelling supplies and limited storage capacity. The first US category to bid below zero was a small landlocked oil stream known as Wyoming Asphalt Sour, which cost 19 cents a barrel last month.

In Texas, prices are going in that direction. A subsidiary of Plains All American Pipeline offered only $ 2 a barrel for South Texas Sour on Friday, while Enterprise Products Partners LP offered $ 4.12 for crude oil from the Gulf Coast of Texas this week, according to price reports.

Bids could fall further if the West Texas Intermediate crude futures index – which has lost three-quarters of its value this year – continues to tumble. The WTI closed below $ 20 a barrel this week for the first time since 2002. This does not bode well for producers locked into contracts with suppliers, because the daily price they earn for their crude oil changes with the market more large.

“I have never seen a transition from crude oil to Texas at a negative price,” but it is possible, said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “It happened in the natural gas market at the Waha hub in west Texas,” added Lipow.

Rapidly depleted storage remains a major problem amid the unprecedented destruction of the coronavirus pandemic demand, and this could quickly bring prices below freezing, Lipow added.

At least 150 million barrels of available capacity remain. “But it’s the fill rate that probably worries the market,” said Reid I’Anson, global energy economist at Kpler, an industrial research firm. Stocks at the main Cushing, Oklahoma storage center increased by 18 million barrels in three weeks, or 20% of shell capacity, he added.

The good news is that negative prices – if they happen – will likely be “extremely temporary,” said John Auers, executive vice president of energy consultant Turner Mason & Co. Under these circumstances, supply will ultimately be constrained. to close, he added.

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