Thursday, June 15, 2006

It's all about the Sulphur, baby

Whether or not overall oil production has peaked, it's almost a sure thing that the global production of light, sweet crude has begun to dry up. (We've seen this data before.) This poses a number of problems that are really forewarnings of the issues to come.
"You're getting less and less of the good stuff," said Michele Markey, special projects manager for Apache Corp., a Houston-based energy company.

Although the overall supply of oil has been sufficient to cover rising demand, that additional oil has increasingly been what is known as heavy, sour oil. And while consumers may not know that oil can be divided sweet from sour or light from heavy, those distinctions help in understanding why gasoline prices have more than doubled in the past three years....

A refiner can spend roughly $1 a barrel less to refine sweet crude and may reap 25 percent more gasoline, Markey said. "You just get more bang for the buck with sweet crude."
If you need more reason than that to explain high gasoline prices, well, you shouldn't.

The big question is whether the trend in light-sweet can be reversed. The last data I saw referred only to a relatively small number of years (2000-2004) and I don't know if the numbers have changed.

We do know that OPEC and the Saudis are telling everyone to expect more sour production and to invest more in refinery capacity for the foreseeable future. Which is probably bad news.

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