Definition of Heavy Crude Oil
What is Heavy Crude Oil
Heavy crude oil is classified as a hard commodity and represents a subtype of petroleum that is distinctive due to its high density and high viscosity, which comes from its large constituent of heavy hydrocarbon molecules. This unique form of crude oil is found in various regions across the globe, with substantial reserves notably located in countries like Canada, Venezuela and Mexico.
Characteristics of Heavy Crude Oil
The complex characteristics of heavy crude oil make it notably challenging to extract and refine. Unlike its lighter counterparts, heavy crude oil doesn't flow easily at standard temperatures, demanding additional extraction techniques such as heating or diluting it to facilitate removal from the ground.
How Does Heavy Crude Differ from other Crude Oils
Based on the American Petroleum Institute (API) gravity scale, which is used to measure the specific gravity of liquid petroleum, heavy crude oil typically has an API gravity of less than 20. This low API gravity implies that the oil has a greater density as compared to light crude oil.
Another aspect that sets heavy crude oil apart is its higher sulfur content and other impurities. These substances not only pose potential environmental hazards when the oil is burned but they also contribute to making the refining process more intricate and costlier.
Uses for Heavy Crude Oil
Each type of crude oil will yield a different variety of refined products. Heavy crude oil is the basis for creating plastics, petrochemicals, road surfacing and other fuels. It can also be refined into transportation fuels. Since the cost of crude oil is the largest input cost for a refinery, processing cheaper heavy crude oil into higher-value refined products usually improves a refinery’s profit margins.
Importance of Heavy Crude Oil
Despite the inherent challenges associated with heavy crude oil, it remains a vital energy resource worldwide owing to its abundant reserves. With over 160 different types of crude oil traded on commodity markets, heavy crude plays a significant role in commodities trading.
Price Volatility
Fluctuations in the demand and price of heavy crude oil can heavily influence the economies of countries rich in these oil reserves. Similarly, technological advancements in extraction and refining processes can have a profound impact on the profitability and environmental consequences of heavy crude oil production.
Final Thoughts on Heavy Crude Oil
Understanding the unique attributes and market dynamics of heavy crude oil is crucial for anyone interested in investing or trading in the commodities sector. Understanding the unique terminology can benefit your commodity trading by helping to provide valuable insights into this challenging but essential segment of the commodity market.
Glossary of Terms and Phrases
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We learn new languages to communicate with each other, transact business globally and to appreciate other cultures. Global finance is a specialized language that if understood and mastered, it will provide benefits that help to decrease risk and improve investment returns. Financial literacy is the foundation of developing good investment strategies and sound decision making.
Related Investment Terms
Commodity
Commodity Risk
Derivative Contract
