End of US Crude Oil Export Ban: Impact on US Crude Oil Producers

United States could lift the crude oil export ban 

The United States may lift its 40-year-old crude oil export ban. The lifting of the ban could narrow the spread between Brent and WTI crude oil prices. The spread between Brent and the WTI oil prices narrowed to $1.61 per barrel in yesterday’s trade, as compared to the spread of $3.08 per barrel on December 7. US oil producers like ExxonMobil (XOM), Chevron Corporation (CVX), and Occidental Petroleum Corporation (OXY) could gain from higher WTI crude oil prices.

End of US Crude Oil Export Ban: Impact on US Crude Oil Producers

On the other hand, US refiners would have to pay more to procure crude oil. Higher oil prices would affect the margins of oil refiners like Tesoro Corporation (TSO), Valero Energy Corporation (VLO) and Phillips 66 (PSX).

Although the lifting of the export ban is positive for producers, companies willing to export oil will be hurt by the appreciating US dollar (UUP). We’ll explore this more in the next part of this series.

Background

The United States banned the export of crude oil in 1975 due to a domestic shortage of crude oil. Currently, there is ample supply in the global oil market, and the United States is producing at record levels. The lifting of the ban would motivate US producers to produce more.

Companies like ConocoPhillips (COP), Hess Corporation (HES), and Pioneer Natural Resources (PXD) have been pushing the government to lift the oil export ban. These companies have a crude oil production mix of more than 46% of their total production portfolio, which means they stand to gain from the lifting of the oil export ban.

In contrast, the EIA (Energy Information Administration) expects that lifting the crude oil export ban could hurt refiners. The refiners would lay off employees and could see a loss of $22 billion in annual profits by 2025. The US finished motor gasoline exports hit a record of 15.9 MMbbls (million barrels) in July 2015. The removal of the export ban could give US refiners unlimited access to the global refined products market.

Oil and gas ETFs like the Vanguard Energy ETF (VDE), the iShares US Oil Equipment & Services ETF (IEZ), and the First Trust Energy AlphaDEX Fund (FXN) are also affected by the roller-coaster ride of crude oil prices.