Texas Oil at $2 a Barrel Raises Specter of New Negative Prices

EghtesadOnline: Crude prices in America’s oil capital are getting dangerously close to zero.

News ID: ۷۴۹۸۸۶

20 April 2020

Buyers bidding for crude in Texas, the birthplace of the shale revolution, are offering as little as $2 a barrel for some oil streams, a precipitous markdown from a month ago, Financial Tribune reported.

The slumping value of physical barrels is raising the possibility that Texas producers may soon have to pay customers to take crude off their hands.

Negative prices have already hit more obscure corners of the American oil market amid a bearish trifecta of collapsing demand, swelling supplies and limited storage capacity. The first US grade to bid under zero was a small landlocked crude stream known as Wyoming Asphalt Sour, which went for negative 19 cents a barrel last month, Bloomberg reported.

In Texas, prices are heading in that direction. A subsidiary of Plains All American Pipeline bid just $2 a barrel for South Texas Sour on Friday, while Enterprise Products Partners LP offered $4.12 for Upper Texas Gulf Coast crude this week.

Offers could fall further if benchmark West Texas Intermediate crude futures -- which have lost three-quarters of their value this year -- continue to tumble. WTI closed below $20 a barrel this week for the first time since 2002.

That bodes ill for producers locked into contracts with suppliers, as the daily price they earn for their crude moves with the broader market.

Fast depleting storage is still a major issue against a backdrop of unprecedented demand destruction from the coronavirus pandemic, and these could pressure prices below zero fast.