How is Crude Oil Classified?

When crude is discovered, there is no one single variety found. It exists in a number of varying forms, and the composition it is found in determines how it is transported and refined. Crude is classified by both physical and chemical characteristics.

Crude oil is referred to as either light, medium, or heavy, based on its density. The American Petroleum Institute gravity, commonly shortened to API gravity, compares the density of crude to water. An API gravity higher than 10 means the oil is less dense than water and will float on it. An API gravity lower than 10 means the oil is denser than water and will sink in it. When referring to oil, an API gravity greater than 31.1 degrees is considered light. An API gravity between 22.3 degrees and 31.1 degrees is considered medium. An API gravity between 10.0 degrees and 22.3 degrees is considered heavy. Finally, an API gravity of less than 10.0 degrees would be considered extra heavy.

The following shows the classifications for crude oil density:

Crude oil can also be referred to as sour or sweet, based on the sulfur content of the unrefined oil. Determining the sulfur content in crude oil is an important assessment of quality. Sulfur must be removed when refining crude. If it is not, when released into the atmosphere, it can cause pollution and acid rain. Furthermore, high sulfur content can lead to the degradation of metals used in the refining process. When working with crude that contains hydrogen sulfide, it can also be dangerous because it poses a breathing hazard. Crude oil with a sulfur content greater than 0.5% is considered sour; less than 0.5% is sweet.

The following shows the classifications for crude oil sulfur content:

What Determines Crude Oil Prices?

Crude oil prices depend heavily on the two aforementioned classifications. Light crude is easier to refine and produces higher quantities of high-quality gasoline and diesel fuel. It also flows freely at room temperature. The heavier and denser the oil is, the harder it is to transport. Crude classified as extra heavy can also be referred to as bitumen. It is so thick that it must be diluted to transport.

Sulfur content is also very important in determining the quality, and thus the price, of crude. As noted, sulfur must be removed during the refining process. High quantities of sulfur also create problems related to transporting and working with the crude.  For these reasons, sweet crude is generally priced higher relative to sour oil.

In general, light, sweet crude oil is the most desirable. However, there is one other very important factor that affects the price of crude – the location of extraction. If crude is extracted near the coast, it is much easier to transport globally. When it is extracted further inland, it must be transported via pipeline systems to refineries and, eventually, to the coast if it is to be transported globally.

When determining the price of crude oil, oil benchmarks are used as a pricing tool. There are various benchmark prices that correspond to specific oils, each with a distinct density and API gravity. The most commonly used benchmarks are West Texas Intermediate oil and Brent. Having an accessible price that corresponds to a specific geographical location, density, and gravity allows analysts to compare and determine the prices of different crude oils.