Sunoco’s Major Raw Material – Crude Oil
Crude Oil, also known as petroleum and referred to as crude, is the “unprocessed” oil that comes out of the ground. It is a fossil fuel, which means that nature created it from decaying plants and animals living in ancient seas millions of years ago.
There are hundreds of different internationally- traded crude oils, the properties of which vary dramatically. Crude quality is differentiated by its API gravity, sulfur content and acidity. These properties determine the processing requirements for the world’s crude oils and establish their value in the market place.
API gravity describes the “lightness” or “heaviness” of a particular crude oil. A high API gravity number requires less processing to yield light, valuable, products such as gasoline and distillate. The heavier API gravity crude produces a higher amount of heavy products such as asphalt, and resid (used in power plants to make electricity) unless the refinery has sophisticated upgrading equipment.
The sulfur level determines whether the crude is sweet or sour. Super sweet crudes range from 0 to 0.5 wt% sulfur; high sulfur crudes are 1.5wt% and higher. To meet environmental specifications, refiners have to remove the sulfur from light products like gasoline. Heavy, sour crudes are more expensive to process.
Another crude quality which has a great effect on price is acidity. High acid crudes at higher temperatures can cause problems with crude processing equipment metallurgy and, therefore, require special handling. Many refiners can not handle these crudes, which reduces demand and ultimately their price.
Sunoco’s refineries process sweet, super light crude oil, thus avoiding the installation of additional processing units that would be needed to convert the heavier, sour crudes into high-value finished products. Although there currently is a large price differential between sweet and sour crudes, over time that difference has not been enough to justify the large capital expenditures needed to enable Sunoco to run heavy sour crudes.
Sunoco refines about 900,000 barrels per day (BPD) of sweet crude. The majority of Sunoco’s crude oil -- more than two thirds -- comes from West Africa, including countries such as Nigeria, Angola and Gabon. Other supply sources include Canada, the North Sea, North Africa, Venezuela and the U.S.
West Texas Intermediate (WTI), is a blend of crudes with the predominant production coming from West Texas. Though production is less than 500,000 barrels per day, it is used as a benchmark for the pricing of approximately 20 million barrels of crude oil produced every day worldwide. It is of very high quality and is excellent for refining a larger portion of gasoline. It is a light, sweet crude. WTI is traded on the New York Mercantile Exchange (NYMEX) where refiners, producers, hedge funds and other investors determine its price. It is commonly referred to in articles about domestic oil.
Brent is a mix of crude oil from 15 different oil fields located in the North Sea. It, too, is a light, sweet crude oil, but not as light or as sweet as WTI. The Brent fields produce about 200,000 barrels of oil per day. Since Brent production has been in decline, and in an effort to increase the liquidity in the Brent market assessment, two other North Sea crudes, Oseberg, and Forties were added to the Brent pricing evaluations in 2002. About 30 million barrels per day of crude oil is priced as a differential relative to Brent. Brent is traded on the International Petroleum Exchange in London and the marker blend is now referred to as BFO.
Dubai is a medium gravity, high sulfur crude, originating in the Middle East. Though Dubai production is less than 200,000 barrels per day, approximately 20 million barrels per day of Middle East and Far East barrels price relative to this marker crude. Over the past 10 years, production of Dubai has been in a steady decline, which has caused some volatility in the market. To counteract that volatility and potential manipulation of the pricing, Oman crude was added. It is now more recognized as Dubai/Oman.
Purchasing Crude Oil
Almost 85 million barrels of oil are produced every day around the world; it is the world’s most actively traded commodity. The U.S. alone imports 10.8 million barrels per day.
Crude oil’s relative economic value is based on the value of the products refined from it. Sunoco uses computer models that mirror our refinery configuration and constraints to evaluate which are the most cost effective crude types. Changing crude and product prices cause shifts in the grades of crude that are run.
Transporting Crude Oil via the Waterways
Crude oil is moving continuously from the main producing areas to the consuming nations. These movements are made using a number of different modes of transportation. The longest leg of the journey for Sunoco’s crude oil involves tanker ships. Several different sizes of tankers are used to transport crude oil, some large enough to move 2 million barrels.
Sunoco does not own its own ships, so it arranges long-term contracts with independent tanker companies who meet Sunoco’s stringent safety and operations integrity requirements (Click here to read more about Sunoco's marine transportation vetting process).
Sunoco’s commitment is and always has been to run a safe and environmentally sound operation, and that conviction must also be held by the people with whom we do business. The ships Sunoco charters are modern double hull vessels operated by first class owners and crews.
If the Philadelphia area is the heart of Sunoco’s refining operations, the Delaware River and Delaware Bay are the arteries that deliver the crude supply. Once the ships approach the Delaware River, they must lighten (referred to in the industry as "lightering") their loads, so they can safely navigate the shallow channel.
For example, a VLCC (very large crude container) fully loaded has a draft (depth) of 62'; the SUEZMAX has a draft of 55'. If either ship wants to traverse the Delaware River, which has a 40' draft restriction, then some crude has to be transferred to tanker ships or barges. The transfer of oil must be managed very carefully to ensure no spillage occurs.
Once the crude arrives at the refinery docks, it is moved by pipelines into storage tanks, until it is processed by the refineries. The company’s refineries are located in Tulsa, Oklahoma; Toledo, Ohio; Philadelphia and Marcus Hook, Pennsylvania; and Westville (Eagle Point), New Jersey.
Understanding the cost of doing business
The forces affecting the price of crude oil have changed since the 1970s and are changing continually in today’s market.
Increased global crude and product demand, especially from China and India (both developing nations with populations in excess of 1 billion), is stretching the existing production and refining infrastructure.
Another factor driving prices higher is tighter environmental laws governing all finished petroleum products, which is affecting the whole world.
Obtaining a high profile commodity like crude requires monitoring many priorities simultaneously, from world events (i.e., OPEC, geopolitical issues, etc.), to the weather (Hurricanes Katrina and Rita), and even to tracking freight prices.