Lots of individuals don’t understand that the oil we pull out of the ground in Oklahoma possesses different qualities compared to oil that comes out of the Middle East or Canada.
As John Schiffner of Swan Energy explains, there is two aspects that usually define the characteristics of oil that cause these differences.
The first aspect is called API gravity.
API is short for American Petroleum Institute; this is a statistic that is used to calculate how weighty or light petroleum liquid is compared with water.
If the API gravity is lower than 10, it’s heavier than h2o and sinks; if the API gravity is greater the 10 it’s lighter than water and floats over water. API is calculated in “degrees.” Most petroleum valuations land between 10 and 70 API gravity degrees.
Generally oil with an API gravity between 40 and 45 commands the greatest price ranges. Oil which has an API above 45 degrees is significantly less valuable to refine because of the variations to the molecular framework.
The API gravity of the oil that Swan Energy is at present pulling out of its oil wells in Oklahoma is close to 38.00 to 42.00 degrees.
There is three primary categories of oil based on API Gravity:
* Light crude oil: API gravity higher when compared to 31.1 degrees * Medium crude oil: API gravity between 22.3 and 31.1 * Heavy crude oil: API gravity below 22.3 * Extra heavy crude oil: API gravity under 10.00
There might be a few variations in grading from party to party, but this may provide you a decent standard to understand the grades of oil.
The second element is how sweet or sour oil may be. This is dependant upon the sulfur content of the petroleum
Petroleum is viewed as “sweet” if it consists of less than 0.5% sulfur. “Sour” oil describes petroleum which consists of more than 0.5% sulfur.
The expression “sweet” emanates from the nineteenth century prospectors who would taste small amounts of the oil to establish its quality; the lower level of sulfur provides the oil with a slightly sweet flavor and satisfying scent.
Sour oil is far more prevalent than sweet oil. Sour oil is found in Canada, the Gulf of Mexico, areas of South America as well as the majority of the Middle East; sweet crude is even more frequently manufactured in the Central United States, nearly all of Africa, the Asia Pacific and the North Sea.
Sweet crude is popular because it requires less processing so as to eliminate impurities. Light sweet crude has the greatest demand while heavy sour crude is traded for a cheap price
The oil which Swan Energy is now acquiring out of Oklahoma is deemed Light Sweet Crude.
Using these two factors, oil will then be priced on the world market while using several types of oil. There’s a couple of major standards for world oil prices: WTI crude oil and Brent crude oil. Though each are light sweet crude oils, traditionally WTI trades at a premium (by just a few bucks a barrel) because it’s typically lighter and sweeter. Swan Energy markets the oil produced by the Joint Venture wells utilizing the WTI index not the Brent index.
In 2010, for the very first time, this changed and currently WTI is trading below Brent up to 20%.
The variance in between WTI and Brent began at the conclusion of 2010 and was emphasized in February of 2011. There are two primary factors contributing to this. First are the Libyan situation and the Arab Spring, which diminished supply of light sweet crude to Europe. The next, which can be more long term compared to Libyan crisis, is the oversupply at the primary storage area facility in Cushing, Oklahoma.
As the new pipelines from Canada came online together with oil production boosts in North Dakota and Colorado combined with the two pipelines sending oil up from the Gulf ended in the Midwest refiners being oversupplied with oil. What may also be an aspect is the oil emerging from these places may not compare in level of quality to the light sweet crude oil from the Midwest. These aspects are all actively playing a role in creating a big delta in between Brent and WTI.
There are several experts that feel that market manipulation might be actively playing a factor as well. In essence we will have to wait and see what happens as the turmoil in Libya settles and as more and more oil coming form Canada and North Dakota is being transported by truck and train to the Gulf.
Eventually, need remains high and while we might see temporary increase in supply, oil supply is still decreasing worldwide and this will keep oil prices high, as evident by the increasing WTI costs as it closes the gap in between Brent and WTI at the end of October and start of November.
To get more information on the differences between WTI and Brent oil, visit this website.
By WerbeFabrik from Pixabay