Sweet vs. sour? These are the differences in the types of crude oil

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Catherine K. asks:

How is West Texas Intermediate different from say Saudi crude or Venezuela sour? What is light, sweet crude? Why does the type of oil matter?

At a refinery, crude oil ultimately gets converted into three main products: gasoline, diesel and jet fuel. But there’s a wide spectrum of crude out there ranging in fluidity (light or heavy) and sulfur content (sweet or sour).

“There are as many types of crude oil as there are Cabernet Sauvignons from California,” said Tom Kloza, an independent oil analyst.

The type of oil that you get will dictate how complex the conversion process is. The lighter and sweeter it is, the simpler it is to turn it into transportation fuel, experts told Marketplace.

There are three major oil benchmarks that serve as a reference point for traders: West Texas Intermediate, which represents a light, sweet crude oil extracted from Texas, North Dakota and Louisiana. Brent, another light, sweet crude oil that’s extracted from the North Sea near Europe. Then there’s Dubai crude, which is a medium, sour oil.

Here’s what you need to know about the different types of oil out there.

Sweet ‘n Sour

Light crudes have “low specific gravities” which means that they flow more easily compared to heavy crudes, said Skip York, a nonresident fellow in energy and global oil at the Center for Energy Studies at Rice University’s Baker Institute.

Meanwhile, the sweetness of a crude indicates an oil’s sulfur content, York said. “Back in the 19th century, at the beginning of the industry, the way we measured the sulfur content of a crude was by smelling it,” York said

So if it smelled like rotten eggs, it became known as a sour crude, York noted. Now, we’ve gotten more sophisticated and can actually measure the sulfur content in oil, he noted.

A sour crude has sulfur content greater than 1%, while anything lower than that is a sweet crude, York explained.

Heavier crudes tend to be more sour and vice versa, although there are exceptions – there are some light, sour crudes that exist, along with heavy, sweet crudes, York said.

The lightness and sweetness of a crude matter during the conversion process.

“Refineries that can process light, sweet crude tend to be much simpler, so they're not as complex to make the same suite of transportation fuels. If you wanted to use a heavy crude and make approximately the same yield of gasoline, jet and diesel, now you need additional processing units,” York said.

Heavy crudes were typically only used to make asphalt. Venezuelan sour, in particular, is often used for that purpose. “Asphalt is wonderful to drive on, but it's not wonderful to make, and it's not a big profit maker for refiners,” said oil analyst Tom Kloza.

We have now developed the equipment to convert those oils into transportation fuels, like sweet, light crudes, York said.

“Heavy crude oil has to sell at a discount because it's going into a more complex, more expensive refinery, but at the end, they're both producing the same suite of products: gasoline, jet, diesel and some other stuff,” York said.

Retrofitting a refinery to convert a different type of oil than it was designed for is expensive. New refineries have to think about which oil will be more readily available in the future so that they can decide how much investment they need to make, York said.

A light, sour crude like Arab light can be run through the same refinery as Brent or WTI, but because there’s more sulfur content, you have to do more desulfurization, which means it’s a little bit more expensive to operate the refineries that convert that oil, York said.

There are also heavy, sweet crudes, like Heavy Louisiana Sweet, which can help neutralize the acid in other oils, making it a good oil to blend with, York said.

Benchmark pricing differences

WTI oil tends to directly make a little bit more gasoline than Brent, while Brent tends to make a little bit more diesel than WTI, York said.

The difference is not that big from a refiner’s perspective, but Brent will become more valuable heading into the fall, because we need more diesel for heating oil for our homes, while the gap between the two will narrow in the summer because we need more gasoline, York said.

WTI is typically cheaper than Brent. That’s because WTI incurs higher shipping costs if it’s being transported to Asia, so to be competitive, the actual oil is priced lower than Brent.

Although there is now a two-week ceasefire between the U.S. and Iran, the war in Iran had led to a widening gulf in pricing between Brent and WTI oil last month. Brent became more valuable because it was closer to the refining markets that were the most negatively impacted by the Strait of Hormuz’s closure and freight rates went up faster for Brent vessels than for WTI vessels, York explained.

WTI and Brent oil prices aren’t actually their current price — they represent the price that a refiner is willing to pay for their delivery at a future date, York said. Dubai oil is a commodity that represents the actual price of oil because when you buy that crude, it’s going into a tanker immediately, York said. Over the past month, the price of Dubai oil shot up, trading north of $120 or $130 a barrel at some points.

The oil market operates so quickly that you can see prices change in real time.

“There is probably no market in the world that best reflects principal microeconomics that you learned in your freshman economics class than the oil market,” York said.