As part of a $1.15 trillion spending deal agreed upon in the House yesterday, U.S. lawmakers are reportedly moving to end a ban on crude oil exports that’s been on the books for the past 40 years. Reuters reports:
“Lifting the oil export ban is very important to our industry to enable them to compete on a global basis,” said Senator John Hoeven. The Republican from oil-producing North Dakota has pressured Congress to axe the trade restriction.
“If we always get a lower price than the rest of the world, that obviously gives the advantage to OPEC and Russia,” he said.
Why does this difference in regional pricing matter? Well, when producers are struggling to stay profitable in a bearish market, every extra dollar they can fetch for their supplies matters. That’s the idea underpinning the argument being made by Senator Hoeven—by lifting the ban on crude exports, the U.S. would enter the global market and free up regional bottlenecks that have historically been responsible for depressing the prices that companies plumbing American crude can fetch for their efforts.
That argument is holding less water these days, since the gap between America’s West Texas Intermediate (WTI) benchmark and Europe’s Brent price has narrowed as prices have taken a nosedive. WTI has typically traded at a discount to Brent, and this spring was more than $10 cheaper. But today WTI is trading at just under $36 per barrel, less than $1.50 cheaper than Brent.
But though current market conditions weaken that argument, the political will has apparently materialized to end the ban. This policy was enacted in the 1970s, crafted in reaction to Arab oil embargoes, and it goes without saying that much has changed in the global oil market since then. America’s own oil fortunes have been fundamentally transformed in the last decade alone, thanks to shale. It seems like Congress will attempt to change policies to match these new realities.