As discussed in Part 1 of this paper published in the November 30th issue of the Digest, declining crude prices encourage more spot purchases that save feedstock cost, but mixing different grades to create look-alike crudes have created headaches for refiners. Crude blending is not new as refiners have been buying and blending inexpensive grades for years, though the recent oil market rout—because of on-going supply and demand imbalance—and rising refinery throughout to capture healthy refining margins have boosted this mixing practice in many parts of the world. US refiners have increased the use of light tight oil (LTO) due to shale oil boom and at the same time imported more Canadian oils and bitumen. The decision by the US Congress on Dec. 18 to repeal the 40-year-old crude export ban will likely reduce the price spread between the US WTI and UK Brent crude oil benchmarks. As the costs of moving domestic crudes to both the US East and West Coasts are relatively high, refiners in these regions are expected to import and blend in more Brent-priced foreign oils at the rate comparable to before the shale boom starting 2008-2009. Asian and European operators, on the other hand, are taking in inexpensive heavy grades from Latin America and in some cases Canada to process along with the conventional light oil. Oil producers in Brazil, Colombia, Ecuador, Kuwait, and Saudi Arabia have also equipped their refineries to process higher volumes of domestic heavy oil. In order to process growing amount of crude cocktails, refiners must be flexible and responsive, particularly when fuel demand pattern is shifting back from diesel to gasoline.
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