The frac sand and oilfield mineral markets are facing a
massive drop in demand after negative oil prices rocked the
drilling industry in the United States. The unprecedented
situation of a negative US oil price was created by a "perfect
storm" of oversupply, falling demand and glutted storage
US oil logistics have been struggling to keep up with
soaring domestic production. This boom in production, driven by
fracking across the country, but most particularly in the
Permian Basin, has had oil pipelines working at full capacity
for years. New pipelines have only been able to keep pace with
For this reason, oil prices in many parts of the US have
already been trading at significant discounts to the WTI
benchmark price. This benchmark is assessed on the price of oil
on delivery to Cushing, in the US state of Oklahoma, which is
the center of the oil logistics network and home to a huge
amount of storage capacity.
But brimming US oil storage capacity was badly placed to
deal with an increase in supply, or a decrease in demand. The
Covid-19 pandemic created both those things. Domestic demand
plummeted thanks to the economic shutdown. And an ill-judged
price war between Saudi Arabia and Russia in March flooded the
international markets with supply, stalling exports.
The result was that the tanks at Cushing finally filled up,
just as the May futures contract neared its expiry date. In
essence, that meant that anyone holding a single lot of the
expiring May WTI contract will by the end of the month be
forced to take ownership of 1,000 barrels, or 158,987 liters,
at a location where storage capacity is nearly impossible to
This set off a frantic game of 'hot-potato’,
with traders desperately trying to cast off the contract, and
with it the legal responsibility for handling unwanted crude
oil. The May contract collapsed from $18 per barrel to -$38 per
barrel in the final few hours of trading on Monday April
The focus has now moved to the June contract. The contract
closed on Tuesday, down 43% at $11.57 per barrel.
Oil producers now faced the worrying possibility that their
output was near to worthless, or could even cost them money.
This threatened to be a huge blow for the already embattled
On April 17, oilfield services company Baker Hughes reported
a drop in the number of active drilling rigs in the US of 66
week on week, bringing the total count down to 438 active rigs.
This was the lowest number of drilling rigs since October 2016,
and a drop of 47% year on year.
The closure of drilling rigs was extremely bearish for frac
sand, but prices have not moved lower so far because they have
been under heavy pressure from oversupply since 2018. The
industry has already seen a slew of bankruptcies, due to a glut
of cheaply mined sand of Texas origin.
Fastmarkets’ frac sand, northern white,100
mesh, API, exw Wisconsin price was $27-32 per short ton on
March 19, stable month on month.