Refinery operations are unique from one facility to the next. Although crude oil is always the input, the outputs from that same barrel of crude oil are variable.
Read more about refined product outputs here.
Four Factors that Determine the Mix Of Refined Products Output
Each facility has some degree of control over the mix of refined products they produce based on several key factors.
- TYPE OF CRUDE OIL (CRUDE SLATE)
- REFINING CAPABILITIES
- MARKET DEMAND
- VARIANCE BY GEOGRAPHY
Let’s dive into how each of these factors affects crude oil outputs.
1. TYPE OF CRUDE OIL
While valuable in their own respect, not all types of crude oil are created equal. Two main subcategories of crude oil exist: light/sweet, and heavy/sour. An economy’s interaction with the global crude oil market will be largely dependent on what kind of crude oil they have available.
Light/sweet crude oil contains far less sulfur than its counterpart, making it easier to manufacture during the refining process. It is known for its quality and is scarce in the marketplace, trading at a premium. Light/sweet crude oil is commonly used to produce large amounts of gasoline and ultra-low sulfur diesel (ULSD).
Conversely, heavy/sour crude contains higher levels of sulfur. Because it is a “dirtier” type of crude, it is more expensive to refine and requires more specialized equipment. Complex refineries prefer heavy/sour crude to produce as and diesel because it provides an opportunity for better margins. This is creating new challenges for refiners amid a changing regulatory landscape.
2. REFINING CAPABILITIES
The degree to which a refinery can produce each fuel type is dependent on each facility’s capabilities. The type of crude oil influences what is more economically viable for the refinery to produce, but the refinery operations ultimately make it possible.
Cleaner burning fuels like Ultra-Low Sulfur Diesel (ULSD) or gasoline require more complex refining operations, whereas “dirty” fuel types do not. As the global crude oil landscape shifts toward cleaner-burning fuels, refineries are pressed to continue to update and innovate within their refining infrastructure to keep pace.
Investment in technology not only contributes to the type of refined product output, but it also increases efficiency.
3. MARKET DEMAND
Gasoline and ultra-low sulfur diesel comprise approximately 70 percent of a typical barrel of refined product outputs. For these fuel types, the role of demand and consumer sentiment is heightened, because they tend to be consumer-focused products. This can motivate the mix of a refiner’s slate of finished products depending on its market.
For example, US infrastructure is tailored to produce predominantly gasoline for its highly passenger-vehicle-dependent landscape. In markets with less demand for gasoline, operations would likely trend more towards uses that benefit its specific economic needs—like marine fuels in port cities.
4. VARIANCE BY GEOGRAPHY
Across the globe, the composition of a barrel of refined products varies based on the above criteria—the type of crude extracted or imported, refining capabilities, and shifting market demand.
The map below highlights the breakdown of refined products for the Organization of the Petroleum Exporting Countries (OPEC) nations compared to the United States. Though OPEC is largely recognized for crude oil production, the cartel accounts for approximately 30 percent of global refined product outputs. The pie charts indicate substantial differences in the output of residual fuels, as the lower refinery complexity of OPEC nations results in greater production of heavier, less valuable petroleum products like residuals.
Each nation’s product disposition varies greatly, further revealing the uniqueness of each refining region and the price implications that exist.
Understanding refinery operations to understand your transportation budget
Every market for both crude oil and its refined products has unique conditions that influence prices. For transportation managers looking to understand and get ahead of their fuel budgets—for both over the road and for marine—identifying the factors that influence fuel prices makes for proactive planning.
Read more about the full suite of refined product outputs made from crude oil here.