In The Oil Business, Why Timing Is Everything

Sep 21, 2016
Originally published on September 21, 2016 8:56 am
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STEVE INSKEEP, HOST:

Over the last few days, we've been watching our Planet Money team as they bought crude oil from a man in Kansas.

(SOUNDBITE OF ARCHIVED BROADCAST)

JASON BRUNS: It's not heavy crude. It's the sweet crude, what people want

INSKEEP: Our reporters trucked that sweet crude. They got it into a pipeline.

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UNIDENTIFIED MAN: Well, let's clean this up here and go see what we got.

INSKEEP: And a refinery turned that crude oil into gasoline, diesel and other fuels. Now there's just one last part of the oil deal. Reporters Robert Smith and Stacey Vanek Smith need to find out if they make a profit.

ROBERT SMITH, BYLINE: Timing is everything in the oil business.

STACEY VANEK SMITH, BYLINE: Don't make excuses.

SMITH: I know.

VANEK SMITH: Don't make excuses.

SMITH: I know. It's true, we screwed this whole thing up. And the man who sold us the crude oil, Jason Bruns, he warned us. He says you have to watch the oil prices. They go up, they go down.

(SOUNDBITE OF ARCHIVED BROADCAST)

BRUNS: So you're just on that rollercoaster. You either just, you know, stay on or get off, and I've stayed on.

SMITH: When we got on the rollercoaster, the price of crude oil was $40 a barrel.

VANEK SMITH: We bought 100 barrels from Jason at $40 a barrel.

SMITH: So after we got the oil to the refinery, we called a middleman to sell it. His name is Joshua Wade. He's with Ascent Midstream Partners. He doesn't touch the oil. He just flips it around to another owner.

(SOUNDBITE OF ARCHIVED BROADCAST)

JOSHUA WADE: I technically do take ownership of it, but it's only for a fraction of a second - milliseconds.

VANEK SMITH: You own it for milliseconds?

SMITH: Can you make a profit by owning oil for milliseconds?

WADE: You can.

VANEK SMITH: By driving a hard bargain.

SMITH: Yes. When Josh looked the type of oil we bought and the location, he makes us an offer.

(SOUNDBITE OF ARCHIVED BROADCAST)

WADE: Thirty-one - $31.20 a barrel.

VANEK SMITH: That feels low.

SMITH: We paid Jason Bruns, the guy who drilled our oil - we paid him $40 a barrel.

WADE: OK.

VANEK SMITH: We're going to lose $880 on this deal.

SMITH: And no amount of negotiation can change it because - as I was saying, because of the timing. See, it turns out that we bought our oil at the end of July for a July monthly average. And then it rained, and we couldn't truck it out until the beginning of August. And by then, the average was lower.

(SOUNDBITE OF ARCHIVED BROADCAST)

WADE: And that's what happens a lot of times in this industry.

SMITH: We are oil industry rubes, Stacey. Of course we were going to botch this.

VANEK SMITH: It's not all bad. I mean, we did get 100 barrels of crude oil turned into gasoline, and someone's going to buy that gasoline and put it in their car, and it will bring them joy.

SMITH: OK, last story tonight on All Things Considered - hopefully worth $880 dollars worth of joy. Robert Smith.

VANEK SMITH: Stacey Vanek Smith, NPR News. Transcript provided by NPR, Copyright NPR.