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Oil & Gas 101

Petroleum 101: Types of oil and differentials

Heavy, light, synthetic – each type of crude oil serves a particular market, and each fetches a different price.

Heavy oil. Light oil. Sweet or sour oil. Synthetic crude. According to the Canadian Fuels Association, there are more than 150 different types of crude oil in the world. Canada produces many different varieties of oil, from producing areas in the West, offshore Newfoundland and Labrador, even a small volume of production in southwestern Ontario

Each type of oil has particular characteristics that make it desirable for certain uses, depending on how a given refinery is configured. Some refineries are set up to process heavy oil, which yields different varieties and volumes of refined products than other types of crude. On the other hand, some refineries are engineered for lighter crudes, which are easier and less expensive to refine.


Types of crude oil: heavy, light, sweet and sour

The American Petroleum Institute (API) gravity number is a standard the industry uses to express the density (also known as specific gravity) of oil. API gravity can vary greatly; the higher the API gravity number, the lighter and more liquid the oil. Most crude oil falls into the range of 20 to 45. 

Another factor used to differentiate types of oil is sulphur content. Oil with high natural sulphur (0.5 per cent or more) is called “sour,” while oil with lower sulphur is known as “sweet.” Sour crudes must undergo extra processing to remove sulphur, which then becomes a byproduct that can be used as a component for fertilizer or other industrial products. 

Heavy crude has an API gravity of less than 22.3, due to a higher proportion of long carbon-plus-hydrogen molecule chains. Heavy crude oils are less expensive for a refinery to purchase but more expensive to refine, since they have greater costs from higher energy inputs and additional processing to meet environmental requirements. Heavy crude can be refined to produce transportation fuels, and also provide feedstock for plastics, petrochemicals, other fuels and road surfacing.

Much of Canada’s heavy oil is produced in the oil sands region of northeastern Alberta. Bitumen is the raw material produced from oil sands operations. Bitumen must be diluted with a lighter hydrocarbon to make it liquid enough to flow through a pipeline. Bitumen can also be upgraded to create refined and semi-refined products including Western Canada Select (WCS), also known as synthetic crude oil. WCS is Canada's largest heavy crude oil stream and typically has an API of 19 to 22.

Other heavy oil is produced near Lloydminster on the Alberta / Saskatchewan border, by drilling wells and pumping the thick oil to the surface.

Light crude has an API gravity greater than 31. West Texas Intermediate (WTI) crude oil, which has an API of about 40, is the North American benchmark for pricing light sweet crude. Light crudes are primarily refined into gasoline, diesel and aviation fuels. 

The Newfoundland and Labrador offshore industry produces mainly light sweet crude that ranges in API gravity from about 20 to just over 40. 

The terms “conventional oil,” “tight / shale oil” and “unconventional oil” do not refer to a type or grade of oil but to how the oil is produced. These crudes, primarily produced in Alberta (outside the oil sands region), Saskatchewan and offshore Newfoundland and Labrador, are usually light to medium weight and may be either sweet or sour.

Does type of oil contribute to the differential?

A ‘differential’ occurs when a producer receives a lower price for their oil relative to one of the international benchmark standards. This differential is based on additional costs to the refineries such as transportation and the extra cost to process heavy and/or sour oil.


A differential between WTI and WCS is normal, due to crude oil characteristics (heavy, light, etc.) and the cost of transporting oil from where it’s produced — in Alberta’s oil sands — to current primary markets in the U.S. Midwest and Gulf Coast. Greater distance between producer and consumer translates to more cost to move the oil, thus Canadian producers receive less for their product. 

The differential averages between $12 and $15 per barrel, but can vary considerably. In November 2018, WTI traded at about $59 while the price for WCS was just $13.44. However, the mid-March 2021 price for WCS was reported as $54.15, which was $11.20 below WTI. (All prices in U.S. currency.)

Differentials can also vary due to market forces. For example, the shutdown of a few refineries in the U.S. Gulf Coast due to maintenance or weather (such as hurricanes, or the severe cold snap of February 2021) can cause the price of WCS to plummet (and the WTI-WCS differential to rise) due to temporary regional oversupply.


Currently, most of Western Canada’s oil is transported via pipelines, but with the cancellation of the Keystone XL project in January 2021, rail transportation to U.S. markets – which is more expensive than pipeline – is likely to take a larger role.

One reason Canada needs access to more markets, via additional pipelines like the Trans Mountain Expansion project currently under construction, is to ensure Canada gets the best price for its oil. A recent IHS Markit study found that limited market access has cost Canada at least $14 billion since 2015.