American oil production may be booming, but our crude exports aren’t—thanks to a decades-old ban. The FT makes the case against that ban, calling it a vestige of a bygone era that’s currently handicapping shale producers’ ability to compete in the global market:
Because the US, uniquely among large oil producers, bars its industry from international sales, two crude gluts have emerged: one in world markets and another in the US.Crude storage tanks in the US have been filling at a rate of almost 1.5m barrels per day, or about 16 per cent of all the country’s production, as producers struggle to find buyers. The US is still a net importer of oil but the light and sweet (low-sulphur) crude produced from US shale is not a perfect substitute for the imported heavy and sour grades preferred by many US refineries.As a result, the gap between the price that producers receive for their crude onshore in the US and what they would be paid if they could sell in world markets has widened sharply. US benchmark West Texas Intermediate is at a $9 discount to the internationally traded Brent crude compared with near parity in January.For an industry that is under extreme financial pressure, the missing $9 per barrel really matters.
The discount between America’s crude benchmark, the West Texas Intermediate (WTI), and Europe’s Brent price was negligible five or so years ago and didn’t tend to move very much, but the shale boom changed that completely. The fact that American producers can’t sell their crude abroad has produced this spread, and with prices around the world plunging that local discount is putting added pressure on an industry already struggling to stay profitable.Re-thinking the ban on crude exports—which dates back to the 1970s and the OPEC oil embargo—is complicated and sensitive logistically as well as politically, but in this market it’s worth considering how all of this affects shale producers.