Because of a 1970s-era exporting ban, American oil producers can’t sell their crude abroad. But the global oil picture today looks remarkably different than it did forty years ago, and burgeoning American production has many calling for an end to the ban. A new report from the Energy Information Administration takes an in-depth look at what lifting that ban might mean.One of the most frequently cited reasons for lifting the ban has to do with the difference in price crude fetches here in America as compared to the rest of the world. The West Texas Intermediate (WTI) benchmark, used as a stand-in for the price of crude here in the U.S., frequently trades at a significant discount compared to Europe’s Brent benchmark, the price most often used when we talk about the global price of crude. Today WTI is hovering just above $45 per barrel, $4 cheaper than Brent, nearly a 10 percent discount. At times the divide between those two benchmarks has risen past $10, and that has consequences for producers, especially in today’s bearish market.That’s because cheap crude, while nice for consumers, stretches the ability of oil companies to make a profit. When prices drop, companies have to cut capital expenditures and lay off employees, and, in the case of relatively high-cost U.S. fracking, that can also mean ratcheting down production. In that sense, the WTI discount can hurt the ability of American oil companies to compete in the global market. And while the gap between WTI and Brent has narrowed somewhat over the past year, the new EIA report finds that if U.S. production stays high and the export ban is maintained, the discount “is expected to increase to more than $10/b.” However, with a discount that high, if the U.S. were to lift the ban then we could expect “higher wellhead prices for domestic producers, who would then respond with additional production.”That sounds like lifting the ban could be beneficial for producers, but what about consumers? For that, we turn to the WSJ:
[The EIA report] concludes that lifting the nation’s four-decade ban on oil exports wouldn’t increase U.S. gasoline prices and could even help lower them, raising the stakes in the debate about whether to lift or relax the ban. […]Because most U.S. retail gasoline is priced based on the global benchmark rather than the national one, it could lower prices at home, the study concludes. Global crude traded more than $4 higher than U.S. prices on Tuesday, settling at $49.56 a barrel.
Cheaper gas and a more competitive environment for U.S. producers sounds like a win-win, but lifting the ban is still a politically fraught endeavor. One option, Arthur Herman has argued in these pages, would be slowly to mete out American crude on the global market to carefully-chosen allies. In this way, we might fully capitalize on the strategic advantage our new bounty gives us. Whatever happens, the fact that we’re now having this discussion is remarkable. Today we rely on foreign sources for just 27 percent of our oil, the lowest level in 30 years, and that’s opening up new policy options. Hail shale!