After Congress attached a resolution ending the 40-year ban on crude oil exports to a budget omnibus on December 18th, it took less than two weeks for the first tanker to be loaded with crude pumped from Texas and sent on its way to Germany. Shortly thereafter a second tanker departed Houston, bound for Marseille. The WSJ reports:
As with most new markets, the flow of American oil abroad is expected to start with a trickle and then steadily rise. The current price of foreign crude isn’t much higher than what a barrel of U.S. oil can fetch, making a tanker ride across an ocean look expensive to many buyers, experts said.
Oil pumped in producing countries from Norway to Nigeria is similar to the crude flowing out of Texas, but those countries are closer to Europe and Asia, making their shipments more attractive to buyers there for now, according to an analysis by RBN. But a massive expansion of the Panama Canal, scheduled to be complete later this decade, will allow much larger ships to pass through. That has the potential to open up new trade routes between the Gulf of Mexico and Asia.
One of the key reasons that boosters of lifting the oil ban cited for their position in recent years was the spread in pricing between West Texas Intermediate (America’s benchmark oil price) and Brent crude (Europe’s benchmark). In 2011, WTI was at one point more than $25 cheaper per barrel than Brent, and until last year, it was trading consistently at least $5—and often $10—below Brent. That discount hurts American oil producers, and is felt especially keenly by shale companies whose operations are relatively expensive. In the context of today’s bearish markets, even a spread of a few dollars can mean the difference between staying profitable or going under.
But that discount has evaporated recently, and looking at the latest prices today, we see that WTI is actually trading at a 30 cent premium to Brent. In other words, the gap that crude exports were meant to eliminate has already been closed. There will still be plenty of buyers keen on snatching up light, sweet American crude, but just as has been the case with the first shipments of U.S. LNG exports departing Louisiana this week, our oil is being unloaded on a world positively swimming in hydrocarbons.