BAKU, Azerbaijan, Dec.6
By Leman Zeynalova – Trend:
One contributing factor to the widening spread between sweet and sour crude oils is the increasing supply of medium and heavy sour crude oils, Trend reports with reference to the US Energy Information Administration (EIA).
EIA report shows that OPEC has been increasing its production and exports since the second half of 2021, particularly in countries that produce sour grades.
“Unlike the sour crude oil supply that has been increasing, supply from OPEC members that produce mostly sweet crude oils has been relatively flat. Likewise, U.S. production in the Lower 48 states (primarily sweet crude oil) has also been relatively flat,” reads the report.
A second contributing factor to the widening spread between sweet and sour crude oils is higher natural gas prices, according to the EIA.
“The hydrogen used to treat sour crude oils is often produced using steam methane reforming, a process that uses natural gas as an input. As a result, the recent increases in global natural gas prices have contributed to higher refinery feedstock costs. Higher costs have led to lower demand for sour crude oils that incur more of these costs, at the same time increasing demand for sweeter crude oils that avoid these extra costs,” the report says.
Sour crude oils typically sell at a discount to sweet crude oils because they must first be treated with hydrogen to meet low-sulfur fuel specifications. They also require desulfurization to avoid damage to refinery units.
In recent months, however, sour crude oil discounts have increased compared with historical averages. For example, Mars crude oil, which is a relatively sour crude oil produced in the Federal Offshore Gulf of Mexico, has decreased in price relative to the sweet Magellan East Houston and Brent crude oils. Brent crude oil is produced in the North Sea of the United Kingdom.
Follow the author on Twitter: @Lyaman_Zeyn