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Crude understanding...

Aug 25, 2000

'Crude prices hit the roof' is not eyebrow raising news anymore. Prices have been scaling new heights from the beginning of this year. So what's new? Very often, when we come across articles on crude oil, we find different prices quoted for the commodity in the same article. The two most common blends we hear of are Brent and West Texas Intermediate (WTI). Brent crude is a North Sea extract while WTI as the name suggests is from Texas, U.S.A.

Crude oil is made up of a number of chemicals (primarily hydrocarbons). The key differentiators for crude blends are density and sulphur content (level of impurities). Variations in these properties will impact the refining yield. In fact, different crudes will require different refining procedures.

Density for crude is measured as API degrees of gravity. On the basis of density, crude is differentiated as light and heavy crude. Lighter crude will yield a superior product mix as compared to heavy crude. Depending on the level of sulphur content (impurities), crude is termed as 'sweet' or 'sour'. The lower the sulphur content the sweeter the crude and vice-versa. The sulphur content is critical, as more impurities will mean more processing. Sulphur also has damaging effects on the refinery processes.

Therefore, light and sweet crude will be priced at a premium over heavy and sour crude. This is because the former yields a better product mix or contains lesser impurities.

Product Mix (Distillates)
Light Medium Heavy
Petrol Diesel Fuel Oil
Naphtha Kerosene LS/HS
LPG ATF Bitumen

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