The United States has become by far the largest oil producer in the world. With an average pumping of 13.2 million barrels per day, it is ahead of Russia and Saudi Arabia by more than 4 million barrels per day, which complete the podium. Although the short-term outlook remains positive for the US oil industry, there is a very dark “cloud” on the horizon: the oil is coming from the largest “crude oil source” in the United States. It becomes lighter. Although it may not seem like it at first glance, it can be a serious problem.
As they pointed out at a conference a few days ago on American oil, this is an unexpected dilemma for the industry (we didn’t expect it): raw West Texas Midland that which is extracted is increasingly lighter, which could make it less and less attractive to many refineries. To understand what’s going on, it’s first helpful to know the different varieties of oil. When we talk about crude oil, everyone tends to think of the same product, 100% replaceable and interchangeable, but the truth is that oil is an almost unfathomable world.
The fact that the composition of US oil is changing may impact international markets, since the North American giant has become a major oil exporter over the past decade, something that did not happen until 2015. C It was in this year that the law was changed to begin allowing the export of American oil without special licenses. Until that date, the only American oil that could be sold outside the country was either that from Alaska, that destined specifically for Canada, or a small exception of specific oil coming from California to the Pacific countries.
The change in legislation led to a sharp increase in crude oil exports from the United States. In 2015, barely 500,000 barrels per day were exported, a figure which increased rapidly, year after year, until it exceeded 4 million barrels per day in 2023. Indeed, last year started with a record number of 4.66 million of barrels per day of exports, although the figure was corrected to 4.2 million barrels per day last July, the last in which the U.S. Energy Information Administration released the data.
Different types of oil and refineries
Oil is a natural resource that comes in different qualities, which influence 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 more difficult to pump, which generally makes it less attractive in terms of extraction and processing costs. Additionally, heavy oil generally contains a greater amount of impurities, meaning 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 facilitates its extraction and transportation and also contains a greater proportion of light fractions, such as gasoline and diesel, which are the most demanded by-products. Due to its ease of processing and higher yield of refined productslight oil is generally more expensive and coveted on international markets.
Additionally, there is sour oil, which refers to crude oil containing a high sulfur content, usually greater than 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, usually less than 0.5%.
Although U.S. oil is light and sweet (perfect for refining and processing into fuel), ultra-light crudes aren’t good either. Experts explain that when they are excessively light, they must be mixed with heavier grades to be made into gasoline, diesel and jet fuel. Precisely today, the supply of heavy crude oil is lower, which is why it is sometimes even more expensive than light crude oil (which is abundant). High prices for heavy crude oil with which U.S. oil is expected to be blended could reduce demand for WTI Midland. This in turn could lead to lower prices of the globally used Brent benchmark, of which WTI is now 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 in It is a raw material of different qualities and types, and it requires refineries of specific design to be able to transform it into final products. This is why an oil producing country may not be able to export to a specific region if the refineries are not ready to work with that crude oil.
Today, as American Mud Pumps explains, there are six different types of facilities: topping refineries, which are very basic and focus on the distillation of light or intermediate crude oil; hydroprocessing refineries, focused on intermediate oils; cracking refineries, capable of breaking down hydrocarbon molecules into smaller molecules and designed for heavier crude oils; deep conversion refineries, designed to refine heavy and extra-heavy crude oil; integrated, multi-purpose refineries processing a wide range of oil types, from heavy to light, and finally specialized refineries, designed specifically for certain types of oil and to produce very specific products.
The transformation of American oil
The problem of a change in the type of oil extracted by the North American giant mainly affects the Permian Basin, a region of the United States that produces six million barrels of crude oil every day, or almost 50% of the entire world. American production. Well, then, Permian crude oil becomes lighterwhich could cause significant problems for American refiners, estimates Sarp Ozkan, analyst at Ponderosa Advisors.
But shale oil producers in the Permian Basin of West Texas and New Mexico are pumping lighter and lighter crude. Recent tests show the gravity, or density measure, of the oil to be between 41 and 44 degrees, according to sources who declined to be identified because 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 Permian oil becomes much lighter, there could be problems blending it to specification,” he says, referring to the blending necessary for the crude to meet the specifications required by pipeline companies for shipment. The variety of light crude oil 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 at other locations such as the Netherlands, Texas and Houston, assures. this expert. Increasingly lighter oil endangers certain refining systems.
From Reuters they explain that the change in the quality of crude oil increases the risk of damage to certain refining equipment. The problem has become so serious that the industry consortium Crude Oil Quality Association has created a subcommittee to study and potentially resolve the problem. “The quality and integrity of crude oil are at risk,” says Ozkan.
Refineries could suffer
Hydrocrackers, processing units that break down heavy molecules into smaller molecules using high temperatures and pressures, would be underutilized if crude oil started getting even lighter, says the company’s chief commodities analyst. Kpler, Viktor Katona. Additionally, units that turn naphtha into a component of finished gasoline would have to operate too hard.
Although hydrocrackers are initially quite expensive, they make it possible to produce higher-margin diesel and jet fuel that refiners are eager to sell. “The refinery would need to be reconfigured, completely different units built“, larger 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 suited to the processing units they’ve invested capital in,” says Rommel Oates, founder of refining software company Refinery Calculator, in the Reuters article.
“He WTI (Midland) needs a partner – heavy crude oil, because otherwise you don’t want to operate with it, but we might reach a stage where heavy crude oils are too expensive to mix with WTI (Midland),” says Katona. Cost of blending crudes could lead to sharp drop in demand for WTI Midland. “A WTI Midland “Lighter will simply weaken the benchmark, as WTI Midland now loses a little less value,” noted RBN Energy analyst Robert Auers.
