A shortage of heavy crude has prevented U.S. refiners from taking advantage of stronger margins ahead of the new sulfur emission rules of the International Maritime Organizations, which will enter into effect next January.
S&P Global Platts reports a narrowed spread between the prices of light sweet crude and heavy sour grades resulting from the supply crunch in the latter has pressured refiners’ margin. Yet there is a silver lining: the pressure will be temporary, according to S&P Global Platts, with the spread widening again after IMO 2020 rules enter into effect. The reason would probably be the lower demand for heavier crudes.
"We continue to navigate through the narrow light heavy differentials, the ongoing OPEC cuts, sanctions on Venezuela and Iran and the Alberta curtailment limiting supply of economic medium and heavy barrels available on the market," said the chief executive of refiner PBF during the company’s earnings call. "This has put pressure on complex refineries as we are not currently being rewarded for complexity,"
Complex refineries need both light and heavy crude oil grades to produce fuels and other derivatives, while simpler facilities can only operate with light crude, of which there is abundance in the United States. However, their product line is less extensive than the product line of complex refineries, so most refineries along the Gulf Coast are of the complex variety that needs heavy crude.
In its recently released World Oil Review report, Italy’s Eni said that thanks to the U.S. shale boom, the portion of light sweet crude grades on international markets increased to more than 20 percent last year. At the same time, because of U.S. sanctions against Venezuela and declining production in Mexico, the portion of medium sour crudes fell below 40 percent of the total for the first time ever. IMO 2020 rules are widely expected to pressure demand for heavy crude.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.