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July 20th, 2012

Sweet & Sour Crude

by Andrew Price, President & COO

A previous blog, US Crude Oil Benchmarks posted June 28th 2012, discussed the two primary crude oil benchmarks used around the world: 1) the US benchmark, West Texas Intermediate (WTI), and 2) the European Benchmark, Brent. That blog mentions that there are many other crude oil grades with unique prices and that prices can vary depending on the location of extraction, transportation costs to market, and the characteristics of the oil.

The EIA recently posted two nice graphics showing various crude oils and how the two primary characteristics of crude oil (sulfur content and density) vary. Lower density and lower sulfur crudes are easier and cheaper to refine into gasoline and heating oil. These crudes therefore are usually priced at a premium to heavier and higher sulfur crudes.  

The EIA chart shows how US West Texas Intermediate (WTI) and US Light Louisiana Sweet (LLS) are particularly attractive crudes along with Nigeria Bonny Light and Libya Es Sider. Much of the oil from the Middle East is heavy and sour in comparison, including the crudes from Saudi Arabia, Iran, the UAE and Oman.

US Light Louisiana Sweet is priced at $107 per barrel today while US Mars, a heavier and more sour crude also located in the Gulf of Mexico, trades at $101 per barrel. The difference in pricing between these two crudes is mostly due to the quality of the oil, as there is little difference in geographic location or ease of transportation. US WTI, on the other hand, a much sweeter and lighter crude than the US Mars Blend is trading at only $92 per barrel today. The price for higher quality WTI is below the price for the lower quality Mars Blend due to significant transportation constraints that do not allow oil to flow freely from Cushing Oklahoma – the delivery point for WTI - to the Gulf Coast refineries. If the slate of current pipeline expansion projects that are in various stages of development are successful in increasing transportation capacity from Cushing to the Gulf – this price discrepancy could narrow considerably. 

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