Sour Crude

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DEFINITION of 'Sour Crude'

The name given to barrels of crude oil that do not meet certain content requirements, including low levels of hydrogen sulfide and carbon dioxide. Petroleum is considered "sour" if the total sulfur level is greater than 0.5%. Sulfur is an impurity that has to be removed before oil can be refined, which increases the costs associated with processing. Often, sour crude oil is processed into heavy oil like diesel and fuel oil (instead of gasoline) to decrease processing expenses. For safety reasons, sour crude oil must be stabilized prior to being transported by oil tankers. This is achieved by removing the hydrogen sulfide gas (H2S).

INVESTOPEDIA EXPLAINS 'Sour Crude'

The world's major producer of sour crude is Venezuela. Other producers include Canada, the United States, Mexico, Columbia, Ecuador and several Middle Eastern nations. Petroleum is considered "sour" if it contains more than 0.5% sulfur (or 1% by certain definitions), and "sweet" if it contains less than 0.5% sulfur. The term "sweet" was originally used to describe the mildly sweet taste and agreeable smell of the low-sulfur sweet crude oil.

Crude oil is called "crude" because it contains many different hydrocarbon compounds. An oil refinery must separate the dozens of hydrocarbon compounds into separate chemical units, eliminate the contaminants and covert or transform the chemical units into gas. Refiners generally prefer sweet crudes because of the low sulfur content and relatively elevated yields of high-value products including gasoline, diesel fuel, heating oil and jet fuel.

The first sour crude oil futures began trading in June 1990 on the Singapore International Monetary Exchange. Many sour crude products have been launched and terminated due to lack of investor interest. Light sweet crude oil (WTI) futures and options, on the other hand, are the most actively traded energy products in the world. WTI helps manage risk in the energy sector because the contract has the most liquidity, highest number of customers, and excellent transparency. Both full-sized and e-mini futures contracts are traded on through the CME Group's CME Globex, CME ClearPort and Open Outcry (New York) trading venues.

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