THE CRUDE O I L MARKET
197
product demand, product quality specifications and politics can
all change the rankings.
In fact, different markets frequently place different values on
particular grades of crude oil. For example, crude oil, which is
more amenable to the production of low sulfur diesel, is worth
more in the United States than it is in countries the maximum
allowable sulfur is much higher. From another aspect, low sulfur crude oil is relatively more expensive in countries where
the crude oil allows a refiner to meet tighter sulfur limits in the
region without investing in refinery upgrades. These differences
in the value of crude oil quality can be sufficient to overcome
transportation costs. However, government tariffs on crude oil
can also influence the quality of crude oil imported into some
countries and may even negate some of the benefits derived
from quality.
The crude oil market can also be dominated by refinery
placement (Chapter 6) insofar as the site of refinery placement
(i.e. closer to the consumer market rather than close to the wellhead) takes maximum advantage of the economies of scale of
large ships, especially as local quality specifications are increasingly fragmenting the product market. The placement of a refinery close to the consumer market maximizes the ability of the
refinery to tailor the product output to the market by accommodating any short-term surges such as those caused by weather,
equipment outages, and other events. In addition, this policy also
guards against the very real risk that governments will impose
selective import tariffs a n d / o r restrictions to protect the domestic
refining sector.
However, there are some refineries that are exceptions to this
generality, having been developed to serve particular export
markets. These export refining centers, such as refineries in
Singapore, the Caribbean, and the Middle East, give rise to some
regular inter-regional product moves, but they are the exception.
The inter-regional products trade is largely a temporary function
set in place to balance market demand as might occur when there
is a high demand for heating oil due to colder than predicted
winters.
Transport to the market has already been mentioned but a further comment is warranted to note that there are two modes of
transportation for inter-regional trade: tankers and pipelines
(Chapter 3). Tankers have made global (intercontinental) transport
197
product demand, product quality specifications and politics can
all change the rankings.
In fact, different markets frequently place different values on
particular grades of crude oil. For example, crude oil, which is
more amenable to the production of low sulfur diesel, is worth
more in the United States than it is in countries the maximum
allowable sulfur is much higher. From another aspect, low sulfur crude oil is relatively more expensive in countries where
the crude oil allows a refiner to meet tighter sulfur limits in the
region without investing in refinery upgrades. These differences
in the value of crude oil quality can be sufficient to overcome
transportation costs. However, government tariffs on crude oil
can also influence the quality of crude oil imported into some
countries and may even negate some of the benefits derived
from quality.
The crude oil market can also be dominated by refinery
placement (Chapter 6) insofar as the site of refinery placement
(i.e. closer to the consumer market rather than close to the wellhead) takes maximum advantage of the economies of scale of
large ships, especially as local quality specifications are increasingly fragmenting the product market. The placement of a refinery close to the consumer market maximizes the ability of the
refinery to tailor the product output to the market by accommodating any short-term surges such as those caused by weather,
equipment outages, and other events. In addition, this policy also
guards against the very real risk that governments will impose
selective import tariffs a n d / o r restrictions to protect the domestic
refining sector.
However, there are some refineries that are exceptions to this
generality, having been developed to serve particular export
markets. These export refining centers, such as refineries in
Singapore, the Caribbean, and the Middle East, give rise to some
regular inter-regional product moves, but they are the exception.
The inter-regional products trade is largely a temporary function
set in place to balance market demand as might occur when there
is a high demand for heating oil due to colder than predicted
winters.
Transport to the market has already been mentioned but a further comment is warranted to note that there are two modes of
transportation for inter-regional trade: tankers and pipelines
(Chapter 3). Tankers have made global (intercontinental) transport