Chevron reports acceptable zinc levels in US Mars crude output

Zinc levels in flagship US offshore crude Mars' production stream are now within expected levels after some contamination was identified in recent weeks, oil producer Chevron said on Wednesday, citing recent testing.

The start-up of an offshore well increased the levels of zinc in Mars crude earlier this month, leading to tightening crude supplies in the key Gulf Coast refining hub and prompting the US Government to release barrels from its emergency stockpile.

"We are not aware of any current compositional issues with Mars crude blend," Chevron said in an emailed statement.

Chevron said it was engaging with pipeline operator Shell, and coordinating on a testing program to monitor zinc levels throughout the pipeline system.

Prices of the crude grade strengthened 10 cents to trade at a $1.30 discount on Tuesday, rebounding from the lowest it touched in nine months on Monday.

Oil major Exxon Mobil had briefly halted purchases of Mars crude in early July due to the contamination. The company restarted purchases last week for August delivery, according to sources.

The company also tapped the US Strategic Petroleum Reserve for up to one million barrels of crude oil for its Baton Rouge refinery in Louisiana.

Mars, a medium sour crude produced off the coast of Louisiana, is preferred by refineries along the Gulf Coast because of its properties and proximity.

Refineries are typically configured to run certain grades of oil for ideal yields of different types of fuels. Switching to other crude grades can be operationally challenging and limit production, shrinking profit margins.

Zinc does not typically occur naturally in crude oil and industry sources said they worried that running crude with zinc could cause damage to refining units and to catalysts used in processing oil.

(Reporting by Arathy Somasekhar in Houston; Editing by Nia Williams)