The US has become the largest oil producer in the world by far. With an average pumping of 13.2 million barrels each day, it is more than 4 million barrels per day ahead of Russia and Saudi Arabia, which complete the podium. Although the short-term outlook remains positive for the US crude oil industry, there is a very dark ‘cloud’ on the horizon: oil from the largest ‘source of crude oil’ in the US. It’s getting lighter. Although it may not seem like it at first glance, this can be a serious problem.
As they pointed out at a conference held a few days ago on American oil, this is an unexpected dilemma for the industry (it was not expected): raw West Texas Midland that is extracted is increasingly lighter, which could make it less and less attractive to many refineries. To understand what is happening, it is first useful to know the different varieties of oil. When talking about crude oil, everyone tends to think of the same product that is 100% replaceable and interchangeable, but the truth is that oil is an almost unfathomable world.
The fact that American oil is changing its composition may have an impact on international markets, since the North American giant has become a major oil exporter in the last decade, something that did not happen before 2015. It was that year when Legislation was changed to begin allowing US oil to be exported without a special license. Until that date, the only US oil that could be sold outside the country was either that from Alaska, or that crude destined specifically for Canada, or a small exception of a specific oil from California to Pacific countries.
The change in legislation led to a sharp increase in crude oil exports by the United States. In 2015, barely 500,000 barrels per day were exported, a figure that rose rapidly, year after year, until exceeding 4 million barrels per day in 2023. This last year, in fact, started with a record number of 4.66 million of barrels per day in exports, although the figure has corrected to 4.2 million barrels per day last July, the last in which the United States Energy Information Administration has published the data.
Different types of oil and refineries
Oil is a natural resource that comes in different qualities, which influences both its economic value and the refining processes it requires. The main differences between types of oil are based on two fundamental criteria: density and sulfur content. Depending on these parameters, we speak of light and heavy oil, as well as sweet and sour oil.
Heavy oil is characterized by its higher density and viscosity. This means it is denser and harder to pump, typically making it less attractive in terms of extraction and processing costs. In addition, heavy oil usually contains a greater amount of impurities, which means that it requires more complex and expensive refining processes to convert it into usable products, such as gasoline or diesel. On the contrary, light oil is more fluid and has a lower density. This characteristic makes it easier to extract and transport, and, in addition, it contains a greater proportion of light fractions, such as gasoline and diesel, which are the most in-demand derived products. Due to its ease of processing and higher yield in refined productslight oil is generally more expensive and coveted in international markets.
Additionally, there is sour oil, which refers to crude oil that contains a high sulfur content, typically above 0.5%. This high sulfur content is harmful to both the refining process and the environment. There is also sweet oil, which contains low levels of sulfur, generally less than 0.5%.
Although US oil is light and sweet (perfect for refining and turning into fuel), super-light crudes are no good either. Experts explain that when they are excessively light they have to be mixed with heavier grades to process them into gasoline, diesel and jet fuel. Precisely today there is a lower supply of heavy crude oil, which is why it is sometimes even more expensive than light crude oil (which is abundant). High prices for heavy crude oil with which US oil would have to be blended could reduce demand for WTI Midland. This, in turn, could result in lower prices for the globally used Brent benchmark index, of which WTI has become an integral part.
This is a good example that illustrates how the oil market is not simple. Oil is not accumulated in a single supply ‘warehouse’, but rather It is a raw material with different qualities and types, and it requires refineries with a specific design to be able to convert it into final products. That is why an oil-producing country may not be able to export to a specific region if the refineries are not prepared to work with that crude oil.
Today, as explained by American Mud Pumps, there are six different types of facilities: ‘topping’ refineries, very basic, and focused on distilling light or intermediate crude oil; hydrotreatment refineries, focused on intermediate oils; cracking refineries, capable of breaking down hydrocarbon molecules into smaller ones, and are designed for heavier crude oils; deep conversion refineries, designed to refine heavy and extra-heavy crude oil; integrated refineries, which are versatile and process a wide range of types of oil, from heavy to light, and finally, specialized refineries, designed specifically for certain types of oil and to produce very specific products.
The mutation of American oil
The problem that a change is taking place in the type of oil that is extracted in the North American giant mainly affects the Permian Basin, an area of the United States that produces six million barrels of crude oil every day, almost 50% of the entire US production. Well then, Permian crude oil is getting lighterwhich could cause major headaches for US refiners, says Sarp Ozkan, an analyst at Ponderosa Advisors.
But shale oil producers in the Permian Basin of West Texas and New Mexico are pumping increasingly lighter crude. Recent tests show that the oil’s gravity, or density measure, is between 41 and 44 degrees, according to sources who declined to be identified as the data is confidential.
At the Argus North American Crude Shipping Summit this week, he explained that about 50% of Permian crude now has an API gravity of 42° or higher (still sufficient density). This figure reflects the quality of the oil at the wellhead. “If the Permian oil becomes much lighter, there could be some problems mixing it to specifications,” he says, referring to the mixing needed for the crude to meet the specifications required by pipeline companies for shipment. The variety of light crude oil coming from the Permian and elsewhere will make quality control difficult at Cushing, Oklahoma, the price settlement point used by the New York Mercantile Exchange, as well as other locations such as Nederland, Texas, and Houston. , assures this expert. Increasingly lighter oil endangers some refinery devices.
From Reuters they explain that the change in the quality of crude oil is increasing the risk of damage to some refining equipment. The problem has gotten so bad that the industry consortium Crude Oil Quality Association has created a subcommittee to study and potentially resolve the problem. “The quality and integrity of the crude oil are at risk,” says Ozkan.
Refineries may suffer
Hydrocrackers, processing units that break down heavy molecules into smaller ones using high temperatures and pressures, would be underutilized if crude oil starts to get even lighter, says the chief raw materials analyst at Kpler, Viktor Katona. Additionally, the units that process naphtha into a component of finished gasoline would have to run too hard.
Although hydrocrackers are quite expensive initially, they help produce higher-margin diesel and jet fuel that refiners are eager to sell. “The refinery would need to be reconfigured, completely different units builtlarger units for light distillates (like gasoline), smaller units for middle distillates (like diesel) and no one has the money for that,” adds Katona. The solution is not simple.
“The refineries will have to mix it (the WTI Midland lighter) to make it a little heavier and better aligned with the processing units they have invested capital in,” says Rommel Oates, founder of refining software company Refinery Calculator, in the Reuters article.
“He WTI (MidlandEdit) needs a partner – heavy crude oil, because otherwise you don’t want to operate with it, but we could reach a stage where heavy crude oils are too expensive to mix with WTI (MidlandEdit),” says Katona. Cost of blending crudes could cause WTI Midland demand to drop sharply. “A WTI Midland “lighter will simply weaken the benchmark because WTI Midland now becomes slightly less valuable,” noted RBN Energy analyst Robert Auers.
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