Crude Oil

The physical crude market. How different crude grades — from light sweet WTI to heavy sour Canadian WCS to medium Arab Light — trade at different prices, flow to different refineries, and respond differently to market forces.

What Is Crude Oil?

Crude oil is a complex mixture of hydrocarbons formed over millions of years from ancient marine organisms compressed under sediment. Before refining, it cannot power vehicles or heat homes. Refineries distill crude into dozens of products: gasoline (approximately 45% of yield), diesel and heating oil (25%), jet fuel (10%), petrochemical feedstocks, asphalt, and lubricants.

Global crude production is approximately 102 million barrels per day. The U.S. leads at 13.2 million bpd, followed by Saudi Arabia (~10M), Russia (~10M), and Canada (~5M). Unlike a single homogeneous substance, crude comes in hundreds of distinct grades, each with different physical properties that determine its value.

Grade	API Gravity	Sulfur	Type	Typical Source

Light Sweet vs Heavy Sour

Crude is classified along two dimensions. API gravity measures density — light crude (above 31° API) flows easily and yields more gasoline with simple refining. Heavy crude (below 22° API) is viscous and requires complex refining with cokers and hydrocrackers. Sulfur content determines whether crude is sweet (under 0.5% sulfur) or sour (above 1% sulfur). Sweet crude is easier to refine into low-sulfur fuels mandated by modern environmental rules.

The combination determines pricing. Light sweet crudes (WTI, Brent, Bonny Light) command the highest prices. Heavy sour crudes (WCS, Maya, Arab Heavy) trade at discounts of $5-25/barrel because they require more complex, expensive refining. Gulf Coast refineries, built to process heavy sour crude, are structural buyers of Canadian, Venezuelan, and Middle Eastern heavy grades.

Refineries Are the Customer

Refineries are the physical destination for nearly all crude oil. Each refinery is engineered to process specific crude slates — U.S. Gulf Coast refineries are complex and handle heavy sour; Midwest refineries run mostly on Canadian heavy via pipeline; West Coast refineries process Alaskan and California light crudes. This creates regional demand patterns that affect crude grade pricing independently of global benchmarks.

When refineries shut for maintenance (spring/fall turnarounds), regional crude demand drops and local discounts widen. When a refinery has an unplanned outage, crude prices in its feedstock region can fall while gasoline prices rise elsewhere. This is why following refinery operations is essential for understanding regional crude markets.

Frequently Asked Questions

What is crude oil?

Crude oil is a naturally occurring mixture of hydrocarbons extracted from underground reservoirs. Before refining it has no direct use — refineries distill it into gasoline, diesel, jet fuel, heating oil, petrochemical feedstocks, asphalt, and lubricants. Approximately 102 million barrels are produced globally each day.

What is the difference between light and heavy crude?

API gravity measures density. Light crude (above 31° API) flows easily and yields more gasoline with simpler refining. Heavy crude (below 22° API) is viscous and requires complex refining with cokers and hydrocrackers. WTI (39.6°) and Brent (38°) are light; Western Canadian Select (20.5°) and Maya (22°) are heavy.

What does sweet vs sour crude mean?

Sulfur content. Sweet crude has under 0.5% sulfur and produces low-sulfur fuels with minimal processing. Sour crude has over 1% sulfur and requires desulfurization. Modern environmental rules favor sweet crudes; refineries built for sour crude have specialized equipment and can buy sour barrels at a discount.

Why do crude grades trade at different prices?

Three reasons: quality (light sweet yields more high-value products), logistics (seaborne crudes are cheaper to transport), and market access (pipeline-constrained grades face bottlenecks). Canadian Western Select trades $15-25 below WTI because it is heavy, sour, and must travel by pipeline to Gulf Coast refineries.

How do refineries affect crude demand?

Refineries are the physical buyers of crude. Each refinery is configured for specific crude slates — Gulf Coast complexes run heavy sour, Midwest refineries run Canadian heavy via pipeline, West Coast plants run Alaskan light. Regional refinery operations create localized crude demand patterns.

Why do regional crude discounts happen?

Pipeline constraints, logistical isolation, and refinery mismatches create regional price dislocations. WCS trades far below WTI because Canadian takeaway capacity is limited relative to oil sands production. Brent trades above WTI because its seaborne access to global markets supports a premium.

Which crude benchmark matters most?

Brent prices roughly 75% of globally traded oil and is the dominant international reference. WTI leads U.S. domestic pricing. Dubai and Oman set Middle East exports to Asia. Saudi Arabia’s monthly OSPs (Official Selling Prices) for Arab Light guide physical Middle East trade.