Gulf Sour Crude Oil
What is Sour Crude Oil?
Sour Crude oil is an oil which does not meet certain 'content' requirements. These requirements include low levels of hydrogen sulphur and carbon dioxide. If the total sulphur level is greater than 0.5%, it is classed as an 'impurity'. The impurity will need to be removed before the oil can be refined, this in turn increases the costs associated processing.
Uses of Sour Crude Oil
Sour crude oil is used in the same ways that other crude oil is the difference being that it has a different sulphur content. The uses for crude oil once refined can include but not limited to the production of:
- Heating Oil
Risks of Sour Crude Oil
Like any futures contract, there is always the possibility that the underlying asset i.e. sour crude oil will move in the opposite direction to which you hold your contract. For example: you have taken a long position (expecting the price of sour crude oil to rise), if this were to happen and the sour crude oil fell in price, your long position in sour crude oil will decrease in value.
With any commodity, supply and demand will affect the price dramatically if there is a change. This risk is one that should be monitored on a regular basis and adjusted to suit your risk parameters.
Mining of sour crude oil has an inherent risk with the level of costs associated with extracting the product from the earth. This can include, but not limited to: the cost of oil to fuel machinery, cost of labour or new tax regulations being implemented.