Unconventional crude oil extraction, transportation, and downstream refining have encountered a huge formation of petroleum emulsion (or rag layer), which causes serious problems such as equipment corrosion, loss of crude oil, and catalyst poisoning. In addition, if not treated properly, the rag layer engenders toxic and hazardous effects on the environment and living organisms. In this study, we developed a supercritical methanol (scMeOH) route to convert the petroleum emulsions into light fraction-rich upgraded oil with low impurities. Several process variables were investigated, including temperature (350-400 degrees C), rag layer concentration (16.7-100 wt%), and reaction time (30-90 min). At 400 degrees C, 35 MPa, 16.7 wt%, and 90 min, a high recoverable oil yield (76.7 wt%) was achieved. In addition, the naphtha-to-diesel fractions increased significantly from 6.0 (rag layer) to 42.0 wt% (upgraded oil), the acidity in terms of total acid number (TAN) was reduced by up to 91.5% from 58.7 (rag layer) to 5.0 mg-KOH/g-oil (upgraded oil), and the heteroatoms (O, N, S) and metallic impurities (Ca, Ni, V, Fe) were reduced significantly in the upgraded oil. A model compound study revealed that esterification is the major deacidification pathway for TAN reduction. The rag layer conversion in scMeOH was compared with those in subcritical water (without adding additional methanol or water) and in supercritical water (scH(2)O). Asphaltenes, Ni, and N were completely removed from the toxic rag layer in the presence of scMeOH as compared to scH(2)O treatment, which makes it more suitable for upgrading.