Refining costs drive up oil prices

Oil-consuming countries, and especially the United States, are struggling to refine heavy crude oil as lighter crudes become rarer, driving global oil prices higher. The supply of light, sweet crude oil, prized by refiners for its low density and lower sulfur content, is becoming stretched. The little crude oil that is available is increasingly heavy sour crude that is more costly to refine. Big oil producers and the International Energy Agency, which looks after the interests of energy consuming nations, agree that the global oil-supply chain is growing taut in large part because of the lack of refining capacity for abundant high-sulfur crude.

Earlier this month, Saudi Oil Minister Ali al-Nuaimi insisted that there was no shortage of oil but said there were not enough refineries that can handle the crude that was available. The IEA, which was set up in 1974 by consumer nations after the first oil shock, voiced similar concerns in its monthly oil market report for October.

It warned that there was a ''mismatch'' between the oil that can be produced cheaply and what refiners can process. The Paris-based organization also predicted that prices for the prized light sweet crude would remain high for some time. The organization warned that investment to increase refining capacity was critical to be able to process the oil producers were providing. ''Simply put, it is not enough to increase upstream spare production capacity without a corresponding increase in the downstream,'' the IEA said in its October report.