To recover useful lighter hydrocarbons from heavy oil, catalytic cracking of petroleum residual oil was examined. The residual oil was converted into lighter hydrocarbons such as gasoline and kerosene in a steam atmosphere over zirconia-supporting iron oxide catalyst. Steam is decomposed on the catalyst, yielding active oxygen and hydrogen species. Heavy oil fractions are cracked on the catalyst and lighter fractions and coke precursors are generated. The active oxygen species react with coke precursors, producing carbon dioxide. The remaining active hydrogen species are added to the lighter fractions. Therefore, heavy oil was oxidatively cracked on the catalyst without any carbonaceous residue.
