Declining Light Crude Imports Soften Price

September 27, 2012 06:33 AM

The United States is importing less light crude oil than in years past thanks to growing domestic production in the Eagle Ford and Bakken oil formations and increased flow through the Seaway Pipeline from Cushing, Oklahoma. Normally, light crude is more expensive than heavy crude, but that balance has been shaken and experts expect light crude prices to fall in proportion to domestic production.

Crude oil is graded on a number of factors including density which is measured as American Petroleum Institute (API) gravity. The higher the API gravity number, the lighter the crude. Light crude measures above 35 API gravity while heavy crude registers at 25 API gravity or below.

In general, heavy crude imports processed on the Gulf Coast (PADD 3) remain unchanged as heavy crude is either under long-term contract or is needed to blend with domestic light crude. Total volume of imported heavy crude oil has, however, been on a soft decline since 2010.

Expressed as a percent compared to light crude imports, heavy crude rose from 44% in 2010 to 47% of total imported U.S. crude in the first half of 2012. Average API gravity for incoming crude imports has fallen toward the heavy end since 1999 from 29.6 API to less than 26.6 API as of June 2012, marking the gradual dial-down of light crude imports in favor of heavy crude.

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Gulf Coast refineries are designed for processing heavy crude oil so adjustments to machinery and equipment will have to be made before PADD 3 will be ready to process light crude in earnest. But experts are confident that increased domestic production will exert downward pressure on Gulf Coast light crude prices well into the future.



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