What is ‘Sour Crude’
Sour crude refers to a specific type of crude oil that is marked by a higher than normal amount of sulfur, an impurity. Barrels of such crude earn the designation if the total sulfur level of the oil is greater than 0.5 percent. Sour crude may also refer to oil that doesn’t meet content requirements related to hydrogen sulfide and carbon dioxide levels.
It may be compared with light sweet crude oil, which is defined by the New York Mercantile Exchange as petroleum with sulfur levels lower than 0.42 percent.
Sulfur is an impurity that must be removed before oil can be refined, which increases the costs associated with processing. Often, sour crude oil is processed into heavy oil like diesel and fuel oil, rather than gasoline, to decrease processing expenses. For safety reasons, sour crude oil must be stabilized prior to being transported by oil tankers, which is is achieved by removing the hydrogen sulfide gas.
BREAKING DOWN ‘Sour Crude’
Sour crude is produced largely in Venezuela, in addition to Colombia, Ecuador, the Canadian province of Alberta, the Gulf of Mexico, Alaska, Saudi Arabia and other parts of the Middle East. Other producers include Canada, the United States, Mexico, Columbia, Ecuador and several Middle Eastern nations.
Crude oil is called crude because it contains many different hydrocarbon compounds. An oil refinery must separate the dozens of hydrocarbon compounds into separate chemical units, eliminate the contaminants and convert or transform the chemical units into gas. Refiners generally prefer sweet crudes because of the low sulfur content and relatively elevated yields of high-value products including gasoline, diesel fuel, heating oil and jet fuel.
The first sour crude oil futures began trading in June 1990 on the Singapore International Monetary Exchange. Many sour crude products have been launched and terminated due to lack of investor interest. Light sweet crude oil futures and options, on the other hand, are the most actively traded energy products in the world.
West Texas Intermediate crude oil is the underlying commodity of oil futures contracts on the the New York Mercantile Exchange. WTI helps manage risk in the energy sector because the contract has the most liquidity, highest number of customers, and excellent transparency.
Sour crude – recent developments
An April 2018 Reuters report put the past two decades of oil refinement and commodities training into some perspective, showing how smaller and simpler refineries were finding favor in the market thanks to the ready availability of sweet crude and the high cost of sour.
“Over the last 20 years, the nation’s biggest refiners spent billions building units capable of turning heavy, sour crude into gasoline, diesel fuel and other products,” wrote Reuters’ Devika Krishna Kumar. “But the U.S. shale revolution has boosted crude production to a record 10.5 million barrels per day, upending the global oil market by adding millions of barrels of very light crude to the supply mix.”
Most of that production, she pointed out, is sweet West Texas crude, which requires much less processing to make premium fuel.
“On the other hand, OPEC production cuts and supply issues among big producers of heavy crude like Venezuela and Mexico have raised the cost of heavy, sour oil,” said Kumar. “That gives an advantage to some independent refiners equipped for lighter crude.”