When asked about the most expensive oil grade out there, those working in the oil industry are caught blindsided because there’s no easy way to answer this question.

The price of crude oil is determined by its physical characteristics (low-density, low-sulphur grade blends generally cost more, but there are several exceptions to this rule), classic supply-demand conditions, distance from main marketing outlets and trading hubs, potential risks and general market sentiment.

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To make matters even more complicated, speculation plays a major part in price-setting, since the volume of futures trading significantly exceeds that of physical volumes.

So it is possible to pinpoint the world’s most expensive oil?

First, it’s helpful to start by identifying the cheapest crude on the market today. Oil traders often receive offers to buy unknown grades from countries that one could never even associate with oil production, so it’s sensible to focus on established oil grades, for their price development is much easier to follow. Western Canadian Select, a basket of the heavy tar sands coming from Alberta, traded with a $30 per barrel discount to West Texas Intermediate (WTI) in December. Pipeline bottlenecks were the most important factor behind such a massive discount, after the closure of Transcanada’s Keystone pipeline between Alberta and Oklahoma due to leaking in South Dakota and Enbridge’s rationing of its Edmonton-Wisconsin pipeline.

Pipeline bottlenecking isn’t unique or specifically related to Canada. The U.S. benchmark WTI traded at a significant discount to Brent due to oversupply-induced bottlenecking against the background of the U.S. crude market transforming from a south-to-north crude flow-based system to a north-to-south one. Thus, one might infer that availability plays an important role in the value-setting of crude grades—seaborne grades usually take advantage over inland ones because they are easier to move.

Generally, the less refining a crude grade needs, the more expensive it will be, so light and sweet grades should be more expensive.

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Saudi Arabia’s pricing practices reflect the way sweeter grades are valued higher than heavier ones. Every month, Saudi Aramco announces its official selling price for next-month loading cargoes, in the form of a differential to be used against Oman/Dubai (for Asian supplies) or first-month Brent futures (for supplies to Northwestern Europe and the Mediterranean). Arab Heavy (27.4° API, 2.8 percent Sulphur) is generally traded at a discount to both Brent and Oman/Dubai, whilst Arab Extra Light (38.4° API, 1.2 percent Sulphur) is traded at a premium. Needless to say, the recently added Arab Super Light (49° API, 0.1 percent Sulphur) that’s specifically marketed for Asian buyers comes on average with a hefty $3-4 per barrel premium.

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Taking into consideration the above-mentioned facts, you might be amazed to discover that the world’s most expensive oil is Malaysian.

Tapis, the Malaysian crude benchmark traded in Singapore, has for a long time held the title of the world’s most expensive grade. Its lightness (43-45° API) and extremely low Sulphur content (0.04 percent) make for a highly valuable refining asset. At the time of writing it had broken the much-hyped $70 market.

However, having started production in 1979, Tapis has been falling since 1998 and its current production of 200,000 bpd is half of what it was 20 years ago. Hence, the most expensive oil grades now are Kikeh (35° API, 0.1 percent Sulphur), Miri Light (36.3° API, 0.08 percent Sulphur) and Kimanis (38.6° API, 0.06 percent Sulphur), currently trading at $4 per barrel premium to Dated Brent (in December 2017, they’ve oscillated in the +$4-4.50 per barrel premium interval).

In many ways, the Malaysian grades’ remoteness created this demand for them – Australian and Southeast Asian refiners are willing to pay the extra premium to have the crudes sooner than to wait for Brent (similar quality characteristics) or other grades to arrive there.

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It’s important to remember that the current situation and market conditions don’t necessarily mean they’re long term. Current market conditions are in many ways influenced by OPEC’s November 2016 decision to cut oil production worth 1.2 million barrels per day. An overwhelming majority of this cut affected sour production—in fact, more than 90 percent of the production cuts related to high-sulfur grades. As a consequence, crude differentials between sweet-light crudes and sour-heavy crudes narrowed, all the more so as major oil-producing nations not participating in the OPEC deal—namely the United States, Nigeria and Libya—ramped up sweet production in 2016-2017.

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By January 2020, when the International Maritime Organization’s (IMO) new bunker fuel requirements take effect, sweet light crude should pull substantially away from heavier grades, regardless how the OPEC deal works out. The IMO suggests that from 2020 onward, bunker fuel should contain max. 0.5 percent Sulphur (compared to the max. 3.5 percent specification currently in vigor), which would adversely affect fuel oil demand and high fuel-oil yielding grades. Since vacuum residue accounts for more than third of the Mexican Maya or Venezuelan Merey yields, we should see a further widening of differentials. These changes will most likely leave Malaysian grades unaffected, but will likely cause a stir or two for the others.

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This article was originally published on Oilprice.com