Sour Crude

AAA

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).

BREAKING DOWN '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.

RELATED TERMS
  1. Unconventional Oil

    A type of petroleum that is produced or obtained through techniques ...
  2. Nelson Index

    The Nelson Index is a measure of the complexity of an oil refinery. ...
  3. Commercial Well

    Any oil or gas drilling site that produces enough oil or gas ...
  4. Crude Oil

    A naturally occurring, unrefined petroleum product composed of ...
  5. Upstream Capital Costs Index - ...

    A proprietary metric index that tracks the composite cost of ...
  6. Crack Spread

    The spread created in commodity markets by purchasing oil futures ...
Related Articles
  1. Options & Futures

    Fueling Futures In The Energy Market

    The energy market influences every aspect of our lives, and these four options are its driving force.
  2. Economics

    What Determines Gas Prices?

    Gas prices are influenced by more than supply and demand. Find out what determines the price you pay at the pump.
  3. Insurance

    Futures Fundamentals

    For those who are new to futures but want a solid understanding of them, this tutorial explains what futures contracts are, how they work and why investors use them.
  4. Mutual Funds & ETFs

    ETN Analysis: Rogers Intl Commodity Energy Total Return

    Learn more about the Rogers International Commodity Total Return, which is an exchange-traded note that tracks a broad index of commodity futures.
  5. Investing Basics

    Understanding the Spot Market

    A spot market is a market where a commodity or security is bought or sold and then delivered immediately.
  6. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  7. Chart Advisor

    Traders Step Back to Assess Commodities Damage

    Traders are turning to these exchange-traded notes and exchange-traded funds to analyze key commodities and determine what could be coming next.
  8. Mutual Funds & ETFs

    ETF Analysis: iShares Gold Trust

    Learn about the SPDR Gold Shares ETF, how it tracks the price of gold, and what type of investors may want to hold shares in their portfolios.
  9. Stock Analysis

    3 Cheap Russian Stocks You Should Keep an Eye on

    Learn about three cheap Russian stocks to keep an eye on; the more than 50% decline in oil has led to weakness in Russian stocks listed in the United States.
  10. Economics

    These 5 Countries Move the Supply of Oil

    Learn which countries are the largest source of change in the global supply of oil. Oil prices crashed in 2014 as supply increased and demand dropped.
RELATED FAQS
  1. What economic indicators are especially important to oil traders?

    Economic indicators are used by traders and investors in an attempt to understand the underlying fundamentals of the market. ... Read Full Answer >>
  2. How do futures contracts roll over?

    Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >>
  3. Why do companies enter into futures contracts?

    Different types of companies may enter into futures contracts for different purposes. The most common reason is to hedge ... Read Full Answer >>
  4. What does a futures contract cost?

    The value of a futures contract is derived from the cash value of the underlying asset. While a futures contract may have ... Read Full Answer >>
  5. How much oil must be produced to maintain inventory levels in the United States?

    Domestic energy investors should track the reserve inventory of crude oil for the United States, which is released in a weekly ... Read Full Answer >>
  6. What are the main risks associated with trading derivatives?

    The primary risks associated with trading derivatives are market, counterparty, liquidity and interconnection risks. Derivatives ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  2. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  3. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  4. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
  5. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  6. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!