Cheap U.S. shale gas boosting refining profits for sour crudes

LONDON (Bloomberg) --Processing the high-sulfur crudes produced in the Gulf of Mexico hasn’t been this profitable since 2017, thanks largely to cheap shale gas.

While Europe and Asia grapple with surging prices for natural gas this winter, cheap U.S. supplies allow refiners to extract low-cost hydrogen needed to remove sulfur from the fuel made with sour crudes. That means those crude grades, which were out of favor just a few months ago, are back in demand again.

Meanwhile, the recovery from the pandemic has boosted demand for gasoline and diesel, sending benchmark prices for both fuels to their highest since 2014 in October. A government measure of weekly demand for petroleum products reached a record last week.

That’s helping U.S. Gulf Coast refineries to process sour crudes into fuel at the highest margins in four years, according to data from industry consultants OILA.

American refiners are also taking advantage of a wider discount on sour crudes relative to sweet crude as OPEC restores its mainly heavy-sour oil supply. Mexico’s sour Maya crude, for instance, is trading nearly $10 a barrel below U.S. Light Louisiana Sweet.

“This widening of the sweet-sour spread thanks to OPEC+ returning supplies is another reason for the renewed interest in sour crudes,” said Zachary Rogers, director of global oil service at Rapidan Energy.

A return of interest in sour crudes might be just what the U.S. government needs right now as it’s set to announce a new sale tender offering 18 million barrels of sour oil from the Strategic Petroleum Reserve on Friday. The first SPR exchange offer saw 4.8 million barrels loaned to Exxon Mobil.