Historic Oil Output Cuts Give Boost to World’s Dirtiest Crudes

(Bloomberg) — Heavier and more sulfurous oil is getting a
price boost as production curbs by the OPEC+ alliance tighten
the supply of what’s generally regarded as lower-quality crude.
Abu Dhabi’s Upper Zakum, a grade with high sulfur content,
is at the narrowest discount against lighter Murban since 2001,
according to official prices set by the emirate’s national oil
company. Iraq’s Basrah grades are also trading at high
differentials in the spot market, signaling buyers’ willingness
to pay a hefty premium above official selling prices set by
state-owned marketer SOMO.
Medium and heavy-sour oil is usually much cheaper than
lighter and sweeter crudes as it requires more effort and
processing to yield gasoline and diesel. However, given that the
more sulfurous grades come mainly from Middle East OPEC
producers like Saudi Arabia and Iraq as well as sanction-hit
Venezuela, they’re set to become more scarce as a result of the
production cuts.
See also: Canadian Heavy Crude Is in High Demand With
Output Cuts
An increase over the past years in the numbers of
sophisticated Asian refineries that can handle dirtier oil is
also boosting demand for them. Grades such as Oman and Basrah
Light, a medium type of crude, are finding support from traders
looking to profit from a recovery in Chinese demand. The
difference between Oman crude traded in the Middle East and
China is wide enough to create a profitable arbitrage, prompting
a flurry of buying interest.
Still, the value of lighter oil versus heavier crude could
recover if output from Europe, Africa and North America falls
further. North Sea producers are ready to curtail production
should storage space run out, while about 3.4 million barrels a
day of non-OPEC cuts are already in place, with the figure
likely to increase over time, according to Morgan Stanley.