U.S. crude oil exports
The ban on the U.S. crude oil exports, which has been in effect since 1975, is being reviewed by U.S. lawmakers. Recently, in May 2014, U.S. Energy Secretary Ernest Moniz indicated a re-examination of the law based on the fact that some of the supply of domestically produced oil isn’t suitable to be refined locally. Mr. Moniz said, “The nature of the oil we’re producing may not be well-matched to our current refinery capacity.” Earlier, in a conference sponsored by Platts (a leading global provider of energy, petrochemicals, metals, and agriculture information), he commented “There are a lot of issues in the energy space that deserve some new analysis and examination in the context of what is now an energy world that is no longer like the 1970s.” Many U.S. refineries are struggling to process the heavy flow of light, sweet shale oil from places like North Dakota and Texas because the plays were originally constructed to process heavy oil, primarily imported from the Arab Peninsula and Mexico.
A number of U.S. senators including Ron Wyden, a Democrat from Oregon; Maria Cantwell, a Democrat from Washington; and Lisa Murkowski, a Republican from Alaska, have recently asked the Energy Information Administration (or EIA) to study the potential economic effects of authorizing more crude oil exports.
On December 22, 1975, President Gerald Ford signed into law the Energy Policy and Conservation Act (or EPCA)—a ban on most U.S. oil exports. The bill was signed after the 1973 Arab oil embargo shook the U.S. with high global oil prices. The objective of the law was to insulate the U.S. from the volatility and unpredictability of the global crude markets.
Although banning crude oil exports, the Commerce Department has given export licenses for particular types of oil. The exceptions were crude oil from Alaska’s Cook Inlet, oil passing through the Trans-Alaskan Pipeline, oil that’s shipped north for Canadian consumption, heavy oil from particular fields in California, some small trades with Mexico, and some exceptions for re-exporting foreign oil make up those exports.
The EPCA also established the Strategic Petroleum Reserve (or SPR). The SPR is emergency fuel storage of oil maintained by the U.S. Department of Energy to mitigate future temporary supply disruptions. The reserve’s sites were filled with oil beginning in 1977 and will be usable until about 2025. The idea of creating oil reserves goes as far back as in 1950s when Presidents Harry Truman and Dwight Eisenhower recommended similar oil strategies. All of these measures were supposed to harbor as much crude oil inside the U.S. as possible to reduce the nation’s reliance on oil imports.
The restrictions on crude oil exports led to distortions in global and domestic energy markets and kept the price of oil in the U.S. lower compared to the rest of the world. With a rising domestic supply of new crude oil, infrastructure bottlenecks have affected almost the entire value chain. It affected oil producers in Eagle Ford in North Dakota, transportation hubs like Cushing, Oklahoma, and, most recently, the oil refinery hub of the Gulf Coast. Continue reading the next sections to learn more information about the effects.
A lift in the ban of U.S. oil exports would be a positive for U.S. oil prices. It would also be positive for the major U.S. oil producers such as Concho Resources Inc. (CXO), Pioneer Natural Resources Co. (PXD), Hess Corporation (HES), and EOG Resources Inc. (EOG). These U.S. oil companies are part of ETFs such as the Energy Select Sector SPDR (XLE) and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), which would also benefit from the crude oil export.