Heavy oil differential refers to the difference in weight, or gravity, of oil, and secondly to the resulting price differentials. The heavy oil differential affects oil producers because it determines the market price they can obtain for the oil they produce. It also logically inclines oil producers to concentrate their exploration and drilling efforts in areas most likely to contain lighter oil.

Heavier crude oil, as compared to lighter, less dense crude oil, is more viscous. It is more difficult for the oil to flow through pipelines from oil production wells to storage reservoirs or shipping points. Heavy crude oil is differentiated from light crude oil by its specific gravity. The American Petroleum Institute sets gravity standards and currently defines heavy oil as any oil with an API gravity of less than 20.

Weight and sweetness, which refers to the amount of sulfur content present in oil, are two main pricing differential points for crude oil.

West Texas Intermediate (WTI) crude oil is a preferred grade of crude oil because it is one of the lightest oils produced, significantly lighter than Canadian, North Sea Brent crude oil or Saudi Arabian oil. It is also one of the sweetest crude oils, meaning it is more pure, containing relatively less sulfur content. Lighter, sweeter oil is more easily transported through pipelines and is more easily refined into petroleum products.

Price differentials between lighter and heavier oils are significant. For example, as of 2015, a $1 per barrel price increase in WTI crude oil resulted in only a 59 cents per barrel price increase for Brent crude oil.

  1. What causes oil prices to fluctuate?

    Discover how OPEC, demand and supply, natural disasters, production costs and political instability are some of the major ... Read Answer >>
  2. How does the price of oil affect Russia's economy?

    Discover how the price of oil affects the Russian economy. As a net exporter of oil, Russia depends on robust oil prices ... Read Answer >>
  3. How does the price of oil affect the stock market?

    Read about how the price of oil might impact the stock market and why economists have not been able to find a strong correlation ... Read Answer >>
  4. What is the relationship between oil prices and inflation?

    Understand how the price of oil and inflation are often seen as being connected in a cause and effect relationship. Read Answer >>
Related Articles
  1. Investing

    The Reasons for the Mexican-U.S. Oil Swap

    The U.S. government is getting close to a historic deal to allow U.S. producers to swap the light, sweet crude oil that is in too much supply with Mexico, in return for heavy crude.
  2. Investing

    Ending The Limits On U.S. Crude Oil Exports

    As US storage capacity reaches its limit, industry participants and their lobby groups in Washington are calling for an end to the crude oil exports ban.
  3. Insights

    Who Wins With Low Energy Prices? 

    Low oil prices are here to stay for some time. Which economies will benefit or lose from the low oil price regime?
  4. Investing

    The Strategic Oil Reserves Explained

    Strategic oil reserves are one of the least known and least understood national security measures in the United States.
  5. Investing

    Who is Most Affected by Lower Oil Prices?

    With low oil prices affecting just about everyone, from citizens to corporations to entire nations, we look at who wins and who loses with the price drop.
  6. Investing

    How Oil Prices Impact the U.S. Economy

    Now that the United States has increased oil production through shale oil and fracking, low oil prices can harm the U.S. oil industry and its workers.
  7. Financial Advisor

    5 Steps to Making a Profit in Crude Oil Trading

    Whether you are a novice or an energy sector investing veteran, these five steps will give you consistent opportunities to profit in crude oil trading.
  8. Insights

    Flat Oil Prices Mean Big Trouble for Big Oil

    Oil traders are feeling the strain of a flat oil price futures curve, but renewed volatility could provide some relief.
  9. Investing

    4 Reasons Why the Price of Crude Oil Dropped

    Understand what drives the oil industry and how the price of crude oil is affected. Learn about five reasons why the price of crude oil has declined.
  1. West Texas Intermediate - WTI

    West Texas Intermediate is the underlying commodity of the New ...
  2. North Sea Brent Crude

    North Sea Brent Crude is a light sweet blend of crude oil whose ...
  3. Crude Oil

    Crude oil is a naturally occurring, unrefined petroleum product ...
  4. Peak Oil

    Peak oil is the point at which global oil production will hit ...
  5. Oil Reserves

    Oil reserves are an estimate of the amount of crude oil located ...
  6. Oil Field

    An oil field is a tract of land used for extracting petroleum, ...
Trading Center