US companies began selling crude oil on the international market last month shortly after the US Congress ended the country’s 40-year-old ban on oil exports. The action is another byproduct of the US shale revolution and will do little to settle the current fight over global oil market share that has driven oil prices to decade lows.
Congress enacted the ban in 1975, after the OPEC oil embargoes against the US in the 1970s drove gasoline retail prices higher and caused regional gasoline shortages. There has been an occasional relaxing of the ban, such as in the 1980s when shipments of crude began being allowed to Canada and in the 1990s when sales of Alaskan North Slope crude were permitted to relieve a glut of heavy oil on the US west coast. Last year, the ban on shipments of condensate was lifted, and both Pioneer Natural Resources and Enterprise Product Partners began selling condensate overseas.
The first sales of US crude took place on 31 December and in the first week of January as ConocoPhillips and Enterprise shipped cargoes from Texas to Europe. The recent drilling boom in south and west Texas has ushered in a buildup in infrastructure to the refineries along the US Gulf Coast, which will make export easier.
The shale boom made the argument in favor of the embargo seem antiquated. After falling steadily since 1985, US crude production began increasing in 2009 with the sharp rise in shale output. In 2009, US output rose to 5.4 million B/D and increased to 9.3 million B/D last year, as the country almost doubled production, according to the US Energy Information Administration. The US now rivals Saudi Arabia and Russia in terms of energy output and its crude production now surpasses its oil imports.
In the short term, US crude exports should have little effect on the global oil market or oil prices. The world is currently awash in supply and shipping US crude to far-away places such as Asia is uneconomic compared with cheaper oil offered from the Middle East. But in the long term, when the global supply/demand balance tightens, Asia will have another option for crude, especially after a planned expansion of the Panama Canal is completed. Latin America may be a natural outlet for US oil as its refineries are geared to running the light, sweet crude such as that which comes from the Eagle Ford Shale. Most of the refineries on the US Gulf Coast are built to process heavier crude. Shale producers will have another market for their crude, which should encourage production once oil price levels rise again. A study by Columbia University predicted that lifting the export ban could increase US crude oil production by 1.2 million B/D.
The American Petroleum Institute, which lobbied to lift the ban, said the US will now be a major player in the global oil market. While that is not likely in the short term, lifting the ban does add another wrinkle to the current battle over global oil market share, which has changed OPEC strategy and caused crude prices to plummet.
Ending the US Export Ban
20 January 2016