The availability of domestic light crude to U.S. Gulf Coast refineries is expected to continue increasing as pipeline expansions allow more crude to move to the U.S. Gulf Coast. This increased light crude supply could exert downward pressure on Gulf Coast light crude prices.
Light crude generally contains less sulfur than heavier crudes and is easier to process. As a result, it is normally priced at a premium to heavier crude oils. However, processing large amounts of light low-sulfur crude can unbalance refinery processing units. Refineries on the U.S. Gulf Coast in particular are designed to process heavy crude oils. Catalytic crackers, hydrocrackers, and coking units convert the very heavy compounds in the crude oil into lighter and more valuable products. Processing lighter crude oil could underload the cracking units that handle the heavier components and overload the units that process the lighter components, causing refineries to operate less economically than they would with a more balanced crude slate. To process more light sweet crude, PADD 3 refiners would need to readjust refinery crude runs, revamp refinery equipment to run a higher percent of light crude, or reduce the use of heavy crude upgrading equipment, which may have adverse impacts on operations. Each of these alternatives carries a cost and, as a result, refiners may not be willing to pay as much for light crude (compared to heavy crude), and light crude prices could decline.