CRUDE OIL CLASSIFICATION AND BENCHMARKS
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is preferable to sour crude oil because, like light crude oil, it is also
more suited to the production of the most valuable refined products. On the other hand, heavy crude oil has high density, high viscosity, and high sulfur content, making it more difficult to transport
and refine and cheaper to purchase. Sour crude oil has a sulfur content above 0.5% by weight and is usually heavy crude oil, making it
cheaper to purchase but more expensive to refine.
Heavy crude oil will typically have an API gravity of 20 or less —
the higher the API gravity, the lower the density. Heavy crude oil
is harder to handle because it is too thick to pump easily through
pipelines unless diluted with light crude, and it is more expensive
to refine to produce the most valuable petroleum products such as
petrol, diesel, and aviation fuel.
Almost every oil field produces crude with a unique mixture
of characteristics and it is, therefore, easiest to follow the prices
of key benchmark varieties. The petroleum industry generally
classifies crude oil by the geographic location it is produced in
(e.g. West Texas Intermediate crude oil, Brent crude oil, or Omani
crude oil), its API gravity (an oil industry measure of density),
and by its sulfur content. In addition, the geographic location is
important because it affects transportation costs to the refinery.
Light crude oil is more desirable than heavy oil because it produces
a higher yield of gasoline, while sweet oil commands a higher
price than sour oil because it has fewer environmental problems
and requires less refining to meet sulfur standards imposed on
fuels in consuming countries. Each crude oil has unique molecular characteristics that are understood by the use of crude oil
assay analysis in petroleum laboratories. Crude oil from an area
in which the crude oil's molecular characteristics have been determined and the oil has been classified are used as pricing references throughout the world.
Because there are so many different varieties and grades of
crude oil, buyers and sellers have found it easier to refer to a limited number of reference, or benchmark, crude oils. Other varieties are then priced at a discount or premium, according to their
quality. Thus, crude oil is priced in terms of regional blends, each
with different characteristics. Of these characteristics, traders follow certain blends, as they most reflect the overall value of oil,
and therefore affect the way different blends are priced. These are
essentially like a Consumer Price Index for different types of oil.
Approximately 160 different types of crude that are traded around
127
is preferable to sour crude oil because, like light crude oil, it is also
more suited to the production of the most valuable refined products. On the other hand, heavy crude oil has high density, high viscosity, and high sulfur content, making it more difficult to transport
and refine and cheaper to purchase. Sour crude oil has a sulfur content above 0.5% by weight and is usually heavy crude oil, making it
cheaper to purchase but more expensive to refine.
Heavy crude oil will typically have an API gravity of 20 or less —
the higher the API gravity, the lower the density. Heavy crude oil
is harder to handle because it is too thick to pump easily through
pipelines unless diluted with light crude, and it is more expensive
to refine to produce the most valuable petroleum products such as
petrol, diesel, and aviation fuel.
Almost every oil field produces crude with a unique mixture
of characteristics and it is, therefore, easiest to follow the prices
of key benchmark varieties. The petroleum industry generally
classifies crude oil by the geographic location it is produced in
(e.g. West Texas Intermediate crude oil, Brent crude oil, or Omani
crude oil), its API gravity (an oil industry measure of density),
and by its sulfur content. In addition, the geographic location is
important because it affects transportation costs to the refinery.
Light crude oil is more desirable than heavy oil because it produces
a higher yield of gasoline, while sweet oil commands a higher
price than sour oil because it has fewer environmental problems
and requires less refining to meet sulfur standards imposed on
fuels in consuming countries. Each crude oil has unique molecular characteristics that are understood by the use of crude oil
assay analysis in petroleum laboratories. Crude oil from an area
in which the crude oil's molecular characteristics have been determined and the oil has been classified are used as pricing references throughout the world.
Because there are so many different varieties and grades of
crude oil, buyers and sellers have found it easier to refer to a limited number of reference, or benchmark, crude oils. Other varieties are then priced at a discount or premium, according to their
quality. Thus, crude oil is priced in terms of regional blends, each
with different characteristics. Of these characteristics, traders follow certain blends, as they most reflect the overall value of oil,
and therefore affect the way different blends are priced. These are
essentially like a Consumer Price Index for different types of oil.
Approximately 160 different types of crude that are traded around