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THESE are the two commonly used words associated with oil in any news. They are simply the two types of oil that make big impacts on the income as well as the industry. One of them commands a bigger premium price compared to the other. The sweet crude oil is lighter and better, resulting in more expensive selling oil products such as gasoline, reformate, and naphtha. It has a lesser sulfur content of below 1 percent, and is less pollutant. Its gravity ranges between 43-45 API.
It is very valuable and ensures high financial returns. The best well known light crude oil is Tapias from Malaysia. However, it is not traded openly due to limited volume. Therefore, it cannot be considered as a market indicator and is mostly refined domestically, and sold to Japan. The most common sweet crude oils are the American West Texas Intermediate (WTI), and North Sea Crude oil “Brent”. These are most freely traded in the markets, and reflect the crude oil price globally. Other crude oils are priced almost accordingly with discounts based on the sulphur level and products yielded from refining. Russian Urals crude can also be classified as sweet crude oil but sometimes also as sour as it is blended with low sulphur ranging between 0.8 percent and 1.6 percent and with 31 API.
It is discounted to Brent north sea crude oil. The other type is the sour crude oil, mostly concentrated in the Arabian Gulf region, which has the biggest reserve along with Venezuela, the crude oils of which have the heaviest gravity. It contains a high percentage of sulphur reaching above 2.5 percent, making it costly to refine and resulting in poor products yields that are light and expensive. Presently, all countries producing sour crudes opt for cracking to produce lighter crudes and to compete with the same products produced from light crude oils.
With less availability of light crudes, the intention is to go for upgrading and refineries with more sophisticated and advanced technology. In the case with Kuwait, its investments are in 650,000 barrels per day from Zour refinery that produces light products for Far East, Europe and USA markets including light diesel, jet fuels, and low sulphur diesel. The same is with the remaining two refineries in Mina Abdullah and Al-Ahmadi after the recent upgrade. Sour crudes are more available in the markets and most of the OPEC have them, with some exceptions like Nigeria which has crude called Brent, but is light and free of sulphur, making it best for producing gasoline.
On the other hand, some Venezuelan crude oil is hard to produce, despite being considered part of its biggest oil reserve. It remains questionable whether it will be produced later in the years to come. In conclusion, sweet crudes command a higher price for the end values it produces when processed and refined. This is because it yields higher light products and there is high value for one barrel. Plus, it costs less to refine. Oils are also priced according to its destination such as Far East, Europe, or the USA markets. For each destination there is a main crude oil price indicator. Brent price will be discounted for any sour crude sold in Europe. For the USA market, the WTI price indicator is used, but not much volume goes to the USA markets unless producers want to reach a certain volume target. Its price level is normally below any price indicators. Far East markets are usually a combination of average Oman and Dubai crudes with some premium amounts or discounts depending on the market situation. Undoubtedly, when the supply is tight, then a premium of $2 – $3 per barrel will be added. In the end, all types of oil will have their own niche markets and customers, irrespective of whether they are sweet or sour.
By Kamel Al-Harami
Independent Oil Analyst
Email: [email protected]