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Crude Economics
U.S. Frackers Want to Export Their Oil

Low oil prices have producers around the world ruthlessly cutting costs and in some cases output. The price of crude has fallen more than 50 percent since last June, and the American benchmark price is even cheaper than the rest of the world’s.  The FT reports:

The spread between West Texas Intermediate and internationally traded Brent has widened sharply since January, and was about $9 on Friday, representing a discount of about 16 per cent for US crude.

At these prices, every dollar is important for American shale producers struggling to find a way to turn a profit in this bear market. That’s why many producers are calling for an end to the U.S. ban on crude exports—a vestige of the 1970s oil shocks—that contribute to the WTI discount. The FT continues:

Ryan Lance, chief executive of ConocoPhillips, the largest US exploration and production company, told a Senate energy committee hearing last week that the discount for US oil magnified the impact of the fall in crude prices since last summer.

“We are at a competitive disadvantage,” he said. “Our overseas competitors . . . are developing around the world at higher price than we’re getting for the product that is of similar quality.”

That ban on crude exports explains in part why crude oil storage in Cushing, Oklahoma reached an all-time high earlier this month. At the most basic level, oil prices have dropped because supply has outstripped demand, and here in the United States that’s especially true.

Ending the crude export ban is no small task, and it comes with a host of other questions besides its effect on shale producers. That said, it’s worth noting that our frackers are feeling the price plunge a bit keener than their counterparts abroad.

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  • FriendlyGoat

    When a barrel of American crude oil sells to an American refiner at $9 less than what it might fetch abroad, we understand that the American producer is unhappy. Who, however, is netting the $9 savings on the purchase side? The American refiner? Or the American consumers of refined products? Both?

    When the shale producer gets paid $9 more by the option of exporting, who pays that?

    • fastrackn1

      FG, as you know, the American consumer pays in the end. The extra $9 would be just another shifting of money from the 99% to the 1%. Listening to the opinion of “Ryan Lance, chief executive of ConocoPhillips” is like listening to the opinion of the fox when he is asked about the chickens in the hen house.

      I do support the fracking industry, but I think the energy markets will work themselves out in the end and find a happy medium.
      It is funny how so many ‘experts’ whined about oil/gas prices when they were on their way up because of how it would damage the economy and how so many ‘experts’ are whining now when prices are on their way down because it will damage the economy.

      • FriendlyGoat

        Thanks for reply. My question really was a question. So, here’s another. In your opinion, is there a logical overall upside to the USA exporting crude? Net, net, would it be good or not?

        • fastrackn1

          Unless we are consuming much less than we are producing, I think export would only be good for the energy industry, but not good for the consumer.

          But even then I think we need to be careful about exporting. I have a very long-term view of energy in that I believe it is better to use others resources and save ours for the long run because we don’t know what the future holds for mankind. For instance, we don’t know how long it will take us to develop and implement an energy resource that is as cheap and efficient as petroleum products for transportation, heating, etc., not to mention alternatives for petroleum products that are used in thousands of things we use like plastics, etc.

          FG, what really irks me is why commodity traders who will never take possession of the oil or gas they trade are allowed to trade it. Why should we consumers pay more for gas just because some commodity traders (who have no real skin in the game) think it is worth more this week because of some report that came out or some terrorist made a statement. It’s just another part of the ‘system’ designed to help move capital from the 99% to the 1%.

          There was never any ‘real’ reason for oil prices to be where they were for the last 10+ years. There was no shortage of it.

          • FriendlyGoat

            Your answers sound sensible to me.

            Long before the recent drop in oil price some people theorized that we were all paying a “trader premium” that may have been 20-30%. The market changes may be confirming that for us. So, what to do? More “free market”, or less? Seems to me that limiting commodity markets to real producers and real users might help. But that would be a citizen idea we don’t get to enact, I suppose.

          • fastrackn1

            I am a huge supporter of free markets, but we are after all humans and humans need to be regulated/governed to varying degrees depending on what is being regulated…the ‘rub’ is the ‘degree’ of course.

            Here is an article that explains speculative traders affect on all commodity markets. The last paragraph really hits it home.


            There are so many great ‘citizen’ ideas that we will never get to enact unfortunately.

          • FriendlyGoat

            Thanks for link.

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