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.