In a rare instance of bi-partisan cooperation, Democrats and Republicans voted to lift the ban on crude oil exports on December 18, 2015 as part of a budget deal for 2016. At present, U.S exporters are allowed to sell oil to Canada, Switzerland, and Spain, with smaller amounts (less than a million barrels annually) to China, Germany, South Korea, and Singapore.

The ban was put in effect in 1975 in order to provide energy security for the U.S. in the wake of an OPEC embargo in 1973 (as protest for U.S. support of Israel) which devastated gas prices and availability. With the crushing effects of low oil prices on markets today, Democrats agreed to lift the ban in exchange for Republican support to extend renewable energy tax credits for wind and solar projects. Obama signed the budget agreement December 18th.

Many Americans are confused about the import-export question. Simply, despite the fracking revolution, U.S. producers can not provide enough oil for U.S. demand. With overseas oil imports being competitively priced, international trade allows U.S. refiners to buy oil from overseas producers for less cost, especially along the Gulf Coast. Thus, despite there being plenty of U.S. oil, refiners still turn to overseas producers.

In The Spotlight

The lift on the export ban does not mean the U.S. will be selling oil to every nation. Instead, it can now sell oil to nations where imports from other nations are more costly. Mexico and some South American countries will be the primary target for the sale of U.S. light crude as in theory, producers can export to these locations for less than OPEC producers. Further, with Russian influence over European markets, sales of U.S. oil to Europe could effectively change the politics of that continent.

Exports will raise the price of West Texas Intermediate crude — the U.S. benchmark for oil pricing, but estimates are that such an increase would sit between $2 and $8 a barrel according to the Government Accountability Office. This will indeed alleviate some pressure on the oversupply issues U.S. producers are facing and will help ease production profit losses most producers are seeing.

Prices at the pump will also rise though the Government Accountability Office estimates vary greatly — from 1.5 cents to 13 cents per gallon. Both price points (oil and gas) won’t be affected for some time though as U.S. exports will take time to develop.

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Eric Sharpe
About The Author Eric Sharpe
Eric Sharpe is editor and feature contributor of Energy Ink Magazine, which covers the energy industry in the Rocky Mountain West and Northern Plains. He holds a Master’s degree in Educational Technology from Pepperdine University.




www.energyink.us


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