An end to sanctions on Iran has driven global crude futures to 12-year lows and brought sub-$20-a-barrel oil in sight, although for some producers that is already a painful reality.
As Reuters reports, this unfortunate group sells some physical crude cargoes at prices that are closer to $10 a barrel, thanks to an abundance of the “sour” grades they produce and a consumer base that favors higher-quality “light” oils from other origins.
Producers of certain crudes from Mexico, Venezuela, Canada and Iraq are bracing for worse to come as Iran—now free of international sanctions—prepares to offload hefty supplies of heavy sour grades onto export markets.
Some cargoes of heavy Mexican crude are trading for less than $13 a barrel, and downside price momentum for hard-to-refine grades looks set to intensify.
This could act as an additional weight on benchmarks Brent and West Texas Intermediate futures, which have slumped roughly 20% since the start of the year to prices under $29 a barrel today.
“The drastic fall in outright prices is wreaking havoc on heavy crudes which are typically sold at deep discounts to benchmark crudes,” says analysts at JBC Energy.
In the Canadian town of Hardisty, Alberta, buyers can pick up a barrel of crude known as Western Canadian Select—one of North America’s largest heavy crude oil streams—for less than $15, while producers need a price above $43 to make money.
