There is a growing shortage of heavy crude oil in the Atlantic basin due to cuts in Mexican exports and the rerouting of Canadian crude to the Pacific. This scarcity is affecting complex refineries that depend on these types of oil, leading to higher costs across various industries, including shipping, road construction, and power generation.
This situation will worsen as Mexico reduces its crude exports to focus on domestic processing, OPEC continues its supply cuts, and international sanctions on Venezuela, Iran, and Russia.
Reuters notes that “more marine fuel oil is needed by ships making longer voyages around Africa to avoid the Red Sea area, while in summer Saudi Arabia burns more fuel oil for air conditioning and demand also increases from higher construction and road-laying activity.”
Refineries are blending different oil grades or shifting to lighter crudes, which may affect their stability and profitability. The ongoing shortage is expected to continue unless OPEC changes its production strategy.
California refineries are particularly dependent on heavy crude imports given they were constructed to take heavy oil. As a result, California refineries can only take so much light crude before it begins to affect its efficiency and curtail output. Since California decision makers have favored imports over in-state produced oil in the last four years, the state is particularly susceptible to curtailments of foreign heavy oil which is reflected in California’s highest in the nation gasoline prices.
For more information, contact Sean Wallentine.
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