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This has been an eventful year for the global energy markets. The COVID-19 pandemic and the March 2020 price drop caused markets to fall, which saw the price of North American benchmark West Texas Intermediate oil plunge into negative territory for the first time in history. These events, along with the emergence of stricter sulfur contents for fuels, precipitated a global oil industry shock and transformed traditional pricing assumptions. The popularity of sweet crude oil among Asian refiners, it rises to a solid clip. This is an important trend to understand, as it creates a situation where many heavy and extra-heavy acidic crudes, such as those found in the tar sands of Canada and Venezuela, could become blocked assets earlier than expected. He also saw the price differentials between soft crudes and the international benchmark Brent rise to all-time highs, as Asian demand for soft crude soared.
Malaysian Carpet grade crude oil, produced in the South China Sea near the Malaysian Peninsula, has long been recognized as the Very expensive. Its lightness with API gravity of 42.7 degrees and its smoothness, which makes Carpet has extremely low sulfur content of 0.04%, makes it highly desirable for refining into gasoline, diesel and other high quality fuels. Carpet’s popularity appears to be waning and is now trading at a 7% discount to Brent, rather than a premium. This may be explained by the growing demand from Asian refiners for other grades of high quality crude oil. Earlier this year, some unexpected suitors challenged Carpet’s coat as the most expensive in the world. In September 2020, Australian heavy sweet crudes Vincent and Van Gogh were trading at premiums over Carpet despite higher API gravities of 18.5 and 17 degrees and higher sulfur content of 0.55% and 0, 37% respectively. This, like Viktor Katona from OilUSD Explain, was due to their mixing utility and extremely low pour points of minus 17 degrees and minus 15 degrees Celsius, respectively. Pour point is an important but often overlooked characteristic of crude oil. This is the lowest temperature at which a crude oil will flow by gravity when cooled, beyond this point it becomes plastic and will not sink, making it impossible to store or transport in a pipeline. The pour point indicates the paraffin content of a crude oil mixture because larger volumes of paraffin create a higher pour point. A high paraffin content is an undesirable characteristic for refiners because it increases the difficulty and cost of processing crude oil. The extremely low pour points of Vincent and Van Gogh crude oil grades, and therefore the low paraffin content, further explain the skyrocketing popularity of their oil. There are signs that two categories of Brazilian crude oil could take the crown as the most expensive crude oils in the world. Demand for Brazilian Lula and Buzios crude oil, which are produced from the country’s offshore pre-salt oil fields, soared since the establishment of IMO2020 which caps the sulfur content of maritime fuels at 0.5% mass by mass. Both are medium grade sweet crude oils with API gravities of 29 degrees and 28.4 degrees respectively and low sulfur content of 0.27% and 0.31%. Lula and Buzios also have low pour points of around 9 degrees Celsius, indicating low volumes of paraffin, which, when combined with low metal content, makes them cheaper and easier to refine into gasoline. , diesel and other high quality fuels compared to many other crude oil blends. .
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This explains the growing demand for Lula and Buzios among Asian refiners which, at the end of September 2020, saw Brazil become the third supplier of crude oil to China from sixth place in 2018. For September 2020, Brazil’s national oil company Petrobras reported record crude oil exports of just over a million barrels per day, most of these shipments destined for China. It is not only the second largest economy in the world that recovers Brazilian crude oil, there has been an increase in demand from other countries including the United States, Spain, Portugal and the Netherlands. Low. Refiners in other Asian countries, notably India, have indicated they want to increase imports of Brazilian medium-sweet crude oil. Strong and growing demand for medium-sweet Brazilian crude oil will push up its price. The differential between Lula and Brent has narrowed considerably over the past year. According to Oil data, Lula is trading at a 4% premium over Brent or nearly $ 2 a barrel more expensive. Lula sells at a price 8.5% higher at Carpet, which equates to about $ 3 a barrel more. For the reasons mentioned, it is likely that the price differential between Lula and Brent will widen further, especially if demand from Asia remains strong. The price of Buzios is harder to find, but according to Petrobras like Lula, it is trading higher than Brent in China.
While the United States has the world’s largest refining capacity of any country, with a significant share configured for cheaper heavy sour crude oil grades, the combined processing capacity of China, India and other Asian countries far exceeds that of North America. Most of these refineries are designed to process lighter, sweeter crudes., which means that demand for Brazil’s sweet crude oil grades will not only remain strong but will continue to grow. This explains why Brazilian pre-salt production continues to grow despite the decline in overall crude oil production due to the unprofitable closure of non-pre-salt, shallow water and onshore wells due to the difficult price environment. In September 2020, Brazil’s pre-salt oil production reached an average of 2,586.626 barrels per day, 13% more than for the same month a year earlier. This saw pre-salt crude oil production responsible for 70% of Brazil’s total hydrocarbon production, up from 61% a year earlier. The Tupi and Buzios fields, which pump crude oil from Lula and Buzios, when combined, are responsible for 72% of Brazil’s pre-salt oil production.
Petrobras is driving the growth of pre-salt oil production from its pre-salt operations pumping an average of 1.65 million barrels per day for the third quarter of 2020. This was almost 21% over a year on the other and made 62% of the total pre- salt production. Brazil’s national oil company is investing heavily in ramping up activities at the Buzios field to increase production of what is emerging as a popular low-sulfur mid-grade crude oil. Strong demand for Lula and Buzios grades of oil, coupled with their Brent premium and an expected recovery in oil prices in 2021, will boost Brazil’s oil revenues as well as Petrobras’ profits.
Editor’s Note: Find Brazilian crude and 150 other global crude blends on Oil Oil Prices Data Page.
By Matthew Smith for Oil chauffage
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