Slide 10 of 25
Notes:
- All else staying fixed, if residual demand increases, the price of residual fuel would
increase, and refiners would be willing to pay a higher price for heavier crudes that
produce more residual fuel, thereby causing the light-heavy crude oil differential to
contract.
- At the other end of the spectrum, if all else stays fixed, and the demand for light
products increases, refiners can get higher prices for light products and will put a
premium on lighter crudes, increasing the differential.
- As light and heavy product demands shift, so do their prices. Usually both are moving.
The relative price of heavy products versus light is generally what one looks at to see
the impact on light-heavy crude oil differences. It is the relative price of heavier
products like residual fuel to light products like gasoline or distillate that impact a
refiner’s willingness to pay relatively more or less for a heavy crude than for a
light crude oil.
