What is Sour Crude
Sour crude refers to a specific type of crude oil that is marked by a higher amount of sulfur. Sulfur is an impurity in crude oils. Barrels of such crude earn the designation if the total sulfur level of the oil is greater than 0.5 percent. Sour crude may also refer to oil that doesn't meet content requirements related to hydrogen sulfide and carbon dioxide levels.
It contrasts to light, sweet crude oil, which is defined by the New York Mercantile Exchange as petroleum with sulfur levels lower than 0.42 percent.
BREAKING DOWN Sour Crude
Sour crude is produced largely in Venezuela, Colombia, Ecuador, the Canadian province of Alberta, the Gulf of Mexico, Alaska, Saudi Arabia and other parts of the Middle East. In the United States, environmental regulations limit the amount of sulfur content in diesel and gasoline fuels. According to the Energy Information Administration (EIA), the two most essential factors in grading crude oil are the sulfur content and the density. EIA is responsible for objectively collecting energy data, conducting analysis and making forecasts.
Sulfur is an impurity which before refining, must be removed. This need increases the costs associated with processing. Often, sour crude oil is processed into heavy oil like diesel and fuel oil, rather than gasoline, to decrease processing expenses. For safety reasons, stabilization of sour crude oil must happen before being transported by oil tankers. Stabilization requires the removal of the hydrogen sulfide gas.
Crude oil contains many different hydrocarbon compounds. An oil refinery must crack, or separate, the dozens of hydrocarbon compounds into separate chemical units, eliminate the contaminants and transform the chemical units into gas and other products. Refiners generally prefer sweet crude oils due to the low sulfur content and relatively high yields of high-value products including gasoline, diesel fuel, heating oil and jet fuel.
Futures in Sour Crude
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 futures and options, on the other hand, are the most actively traded energy products in the world.
West Texas Intermediate (WTI) crude is the underlying commodity of oil futures contracts on the New York Mercantile Exchange (NYMEX). WTI helps manage risk in the energy sector because the contract has the most liquidity, highest number of customers, and excellent transparency.
The Sweet Side of Sour Crude
An April 2018 Reuters report put the past two decades of oil refinement and commodities trading into perspective. The reporter found smaller U.S. refineries were gaining acceptance in the market thanks to the ready availability of sweet crude and the high cost of sour. "Over the last 20 years, the nation’s biggest refiners spent billions to build units capable of turning heavy, sour crude into products. But the U.S. shale revolution has boosted crude production . . . upending the global oil market by adding millions of barrels of very light crude to the supply mix."
Most of that production, she pointed out, is sweet West Texas crude, which requires much less processing to make premium fuel. This supply pipeline has opened the door for small and independent refineries.