l7/13/2006: Oil glut of heavy sour crude oil that is tough to refine into gasoline. The supply of crude that is easiest to refine into gasoline remains tight enough to keep the price of filling up truly painful.
There's just not enough light sweet crude to meet demand. And, while there's plenty of heavy sour crude, a barrel of heavy sour crude yields about a third less gasoline than does a barrel of sweet light crude.
Many refineries, especially in Asia, can't handle heavy sour crude at all. (A heavy crude is thicker than light crude. A sour crude contains a higher percentage of sulfur.)
How big a glut? A big, big one, judging by the price of light sweet and heavy sour crude. At the end of June, Nigerian Bonny Light, one of most sought-after grades of light sweet crude, was selling on the spot market for $71.65 a barrel, while Saudi Arabian Heavy sold for $58.70 a barrel, according to the U.S. Energy Information Administration. That's a spread of almost $13 a barrel, way above the $5 a barrel historical average for the spread between light sweet and heavy sour grades.
So big a glut that Saudi Arabia, a big producer of heavy sour crude, cut back production in May and that month produced slightly less oil than permitted by OPEC (Organization of Petroleum Exporting Countries) quotas. Iran, which has steadfastly refused to discount its heavy sour crude, has begun storing some excess production in tankers. The current total in tanker storage off Iran is believed to be around 20 million barrels. |
