Bitumen price

The main factor is the crude oil price and refinery economics. Bitumen is a residual product of oil refining — the highest-boiling fraction left at the bottom of the distillation column. Refineries that process heavy crude oil, such as Russian Urals, Mexican Maya, Venezuelan Merey and Canadian oil sands grades, have much higher bitumen yields than simple refineries designed for light, sweet crude such as WTI or Brent. Examples include Valero’s coking refineries, US Gulf Coast coker units, Russia’s Tatneft and India’s Jamnagar complex. When crude prices rise, bitumen prices usually follow. The heavy-light spread is also a major pricing factor.

The second driver is the road-construction cycle. Global bitumen demand is about 120 million tonnes a year. China consumes about 32 Mt, the US about 22 Mt and India about 7 Mt. China’s Belt and Road Initiative, US federal infrastructure packages such as the Bipartisan Infrastructure Law, and the European Union’s TEN-T transport network programmes create multi-year waves of bitumen demand. Demand is highly seasonal. In temperate countries, paving work slows or stops in the winter months from November to March. Refineries then move bitumen into storage terminals or sell residual fractions as fuel oil.

A third structural factor is IMO marine sulphur regulation. The International Maritime Organization cut the permitted sulphur content of marine fuels to 0.5% from 3.5% when the rule came into force. The market for high-sulphur fuel oil (HSFO) shrank sharply. Refineries had to convert residual fractions into lower-sulphur products through coking or hydrocracking. In some refinery configurations, this reduced bitumen yields. The premium for low-sulphur bitumen therefore rose on a sustained basis, and sulphur specifications became one of the market’s main pricing parameters.