Building a world of
resilient communities.

MAIN LIST

 

Western refineries spurning sulphurous Saudi oil

Saudi Aramco, the state oil company, has been forced to offer ever-greater discounts to tempt refiners to buy its product, which is shunned for its high sulphur content.

The official selling price for Saudi oil for October delivery is currently set at a discount of more than $13 per barrel to US light crude which was yesterday selling for just under $65 per barrel.

Weak demand for Arab Light, the main Saudi crude blend, has forced the Kingdom to increase the discount from $10.45 in August to $13.40 in October.

Evidence of the weak demand for Arabian and other high sulphur crudes is likely to increase the tension between Opec leaders and Western governments over the cause of the high petrol prices.

Leo Drollas, of the Centre for Global Energy Studies, reckons that Saudi Arabia may not have cut its price far enough. "Despite $60 oil, there is a lot of crude sloshing about in the market," he said.

Refiners seeking to make high specification petrol and diesel tend to prefer low-sulphur crudes such as Brent or Nigeria's Bonny Light.

Few refineries are able to convert more of the heavy sulphurous "sour" crudes into petrol and most of those are in the United States. The damage caused by Hurricane Katrina has forced refiners to turn to light North Sea and US crude blends which are already in diminishing supply.

Crown Prince Sultan bin Abdul Aziz of Saudi Arabia yesterday blamed the recent surge in the oil price on a shortage of refining capacity. He repeated the Kingdom's pledge to keep the market well supplied with crude but said: "The current rise in oil prices does not stem from a shortage in crude oil supplies but is due to, as everyone knows, increased demand for products and a shortage in refining capacity."

The Crown Prince's comments are a rebuke to Gordon Brown, the UK Chancellor, who this week called on Opec to increase supplies as he defended the Government's high fuel taxes.

Further evidence of a growing pool of oil-seeking buyers emerged as Opec reduced its forecast of growth in demand for oil. Hurricane Katrina and the high price of petrol are curbing growth in demand for oil, the cartel said.

The devastation to US refineries and distribution systems has cut American consumption while price pressure is curbing demand in China and the United States. Opec has sliced 100,000 barrels per day from its forecast of growth in crude demand this year.

Opec now expects demand to increase by 1.4 million bpd to 83.5 million bpd.

The continuing strength of the oil price in the face of rising stocks of crude is a puzzle for oil analysts. Some believe that the shortage of refined products is dragging the crude price upwards. Others point to speculative hedge funds which are convinced that the world's energy market is making a shift towards a post-oil world.

Opec's fifth consecutive cut in forecast demand provides further evidence of the disconnect between the tight market for fuels and the growing supply in the underlying crude oil market. The cartel is producing more than 30 million bpd and has increased its output by 4 million bpd over the past three years.

Editorial Notes: It has to be noted that depletionist commentators predicted this years ago, and this years spate of refinery fires might be evidence that many refineries CANNOT use sour crude.-LJ

What do you think? Leave a comment below.

Sign up for regular Resilience bulletins direct to your email.

Take action!  

Make connections via our GROUPS page.
Start your own projects. See our RESOURCES page.
Help build resilience. DONATE NOW.


Onshore Wind Power Is Now Cheapest Form Of New Electricity In Denmark

A new analysis from the government of Denmark found that wind power is by …

Keeping Oil Production From Falling

Production flows from a given oil field naturally decline over time, but we …

Oil Abundance? Not So Fast- A Risk Checklist

Understanding how we use oil and where it comes from provides many reasons …

Peak Oil Review - July 21

A weekly review including: Oil and the Global Economy, The Middle East & …

Australia Becomes First Nation to Repeal Carbon Tax

With Australia’s standing as the world’s highest per-capita …

Breaking the Grip of the Fossil Fuel Economy: If It Can Happen in Appalachia, It Can Happen Anywhere

The people who agreed to spend their days digging coal from the underside of …

Agrivoltism

What is the best way to utilize sunlight: grow food or to produce fuel?