Should the U.S. lighten its ban on oil exports? Exxon Mobil thinks so, but refiners and drivers might not be so eager, according to Daniel Gilbert and Russell Gold of the Wall Street Journal‘s Corporate Intelligence blog.
The ban stems from the 1970s oil embargo, when OPEC stopped selling oil to the U.S. in punishment for backing Israel. Prices soared and the U.S. tried to conserve by making oil exports illegal without a license. Not many licenses have been granted since, most of them for Canada.
The underlying situation has changed today, with the fracking revolution creating an abundance of oil. The resulting lower prices mean producers want to export to countries who will pay more. There’s also a twist caused by oil types:
“[W]hen it comes to oil, refiners are particular about the flavor of crude they use. The rise in fracking has unleashed a large volume of light, sweet crude oil – while American refineries along the Gulf Coast are generally set up to handle heavier crudes from Mexico and Venezuela. So there’s a mismatch. U.S. oil producers want the option of exporting some high-value light oil, leaving refiners to import lower-cost heavy oil.”
The U.S. is gaining on Russia’s position as the world’s second-highest oil producer. Though it could trim some advantage off low prices for American oil refiners (maybe drivers), exporting more American oil could drive world prices down, as has already begun simply by the U.S. buying less on the world market.
Is the export ban still necessary in light of current supplies? Or could it constitute an artificial cap on the crude oil market?
>>Source: Gilbert, Daniel and Russell Gold. “Exporting American Oil: A Primer.” The Wall Street Journal. 12 Dec. 2013.