The price is right
Crude blending is not new as refiners have been buying and blending inexpensive grades for years. However, a recent surge in fuel demand, particularly for motor gasoline, due to falling retail prices has prompted refiners to boost throughput and at the same time source cheaper crudes at home and abroad to increase profit margins. As a result, mixing activity has drastically increased.
For instance, Italian refiner Saras reportedly processed 30-35 different grades in 2015, doubling the number of crudes its Sarroch plant handled in 2014.Meanwhile, declining crude cost has prompted more frequent crude changes. Approximately between 2010 and 2013, US refiners had increased the use of light tight oil (LTO) due to the shale oil boom and at the same time imported more Canadian oil sands bitumen (for example, Western Canadian Select) due to a widening WTI-Brent spread.
During this period, the crude slate was changed from a conventional mix of imports from abroad to newer domestic crudes. Then starting in 2014, the spread began to narrow and the costs of moving domestic crudes to both the US East and West Coasts were relatively high. As a result, refiners in these regions are returning to import and blend in more Brent priced foreign oils at a rate comparable to before the shale boom started in 2008-2009.
The crude changing phenomenon is further magnified by the recent repeal of the US oil export ban in late 2015 and return of Iranian crude in early 2016.Asian and European operators, on the other hand, are taking in inexpensive heavy grades from Latin America and in some cases Canada to process along with the conventional light oil. Oil producers in Brazil, Colombia, Ecuador, Kuwait, and Saudi Arabia have also equipped their refineries to process higher volumes of domestic heavy oil. That is to say more crude changes and increased blending are forthcoming in the foreseeable future on a worldwide basis.
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