2-IN-1 STORY: Plunging Oil Prices Pain Producers; Two-Thirds Of Norwegian Oil Wealth Could Disappear

© Dean Musgrove / Reuters

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.

RT report continues:

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 US$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 US$13.50 a barrel, while in January 2014 it sold for US$47.60.

At the same time, the price for Canadian bitumen, extracted by fracking from oil sands in Alberta, plunged to US$8.35 last week, down from US$80 two years ago.

The international Brent index dove below US$30 last week, on news that the UN sanctions against Iran were to be lifted. Crude traded at US$28 a barrel on Monday, before rebounding to just over US$29 on Tuesday afternoon.

By comparison, actual steel barrels that oil is stored and transported in can cost anywhere between US$55 and US$99 apiece.

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 US$1.87 and dropping. In California, the state average was just under US$2.75 a gallon, with some places selling gas for as low as US$2. In New York, the average was US$2.15, and the lowest price at the pump was US$1.51. Drivers in Texas could fill up at US$1.66 a gallon, or US$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 US$.47 a gallon.

© Antonio Bronic / Reuters

Two-Thirds Of Norwegian Oil Wealth Could Disappear

RT reports that if crude prices remain at current low levels, Norway could lose two-thirds of its estimated oil wealth, according to an analysis done by the country's largest business newspaper Dagens Næringsliv.

Norway's Finance Ministry estimates the value of oil not yet extracted at 4.2 trillion kroner (US$475 billion), 89 percent of which belongs to the state.

This means that the value of Norway’s oil wealth will fall from 4.2 trillion kroner to 2.5 trillion. The country could presumably lose 1.7 trillion kroner (US$192.5 billion) of its oil riches.

The price of North Sea oil dropped below US$28 per barrel last week compared to US$110 in June 2014.

Professor Ragnar Torvik from the Norwegian University of Science and Technology (NTNU) says the price change means a significant amount for each individual Norwegian.

“Capital reduction in the public sector is at 2,429 billion kroner, which is 500,000 kroner (US$57,000) per resident or two million for a family of four. That illustrates how much the fall in the price of oil reduces wealth,” said Torvik.

Finance Ministry State Secretary Paal Bjornestad declined to comment on the analysis in detail, referring to the significant degree of uncertainty in the long-term estimates of this kind.
“There is little doubt that sustained lower oil prices will eventually have consequences; we will be less rich than we thought. This of course means that we will be putting smaller earnings into the fund and the growth in our expected real return will be smaller,” said Bjornestad.