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Independent Refiners Gained from US Crude Oil Export Ban

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US crude oil export ban

The latest development from the US government suggests that the 40-year-old US crude oil export ban could be lifted. The lifting of the oil ban opens the window for US oil producers to export the light, sweet shale-extracted crude oil to global buyers. Most US refiners in the Gulf Coast have refineries to refine heavy Brent oil. That’s why the  US continues to import crude oil. Oil producers like Hess (HES) suggest that lifting the crude oil ban could support US shale operators as it could increase the prices of WTI (West Texas Intermediate) by $3 per barrel to $8 per barrel from current crude oil prices.

Also, US producers could have a relief in the depressed energy market due to higher oil prices. Even companies like ExxonMobil (XOM) and Continental Resources (CLR) see the lifting of US crude oil export ban as a welcome move and push for the reform.

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US producers and refiners

On the other hand, US refiners are unhappy about the lifting of the crude oil export ban. The ban’s lifting could mean that they would have to pay higher prices for crude oil used for refining, and that could affect their profit margins.

However, crude oil refiners outperformed US producers in yesterday’s trade due to the tax advantage they are getting due to the lifting of the ban. Oil refiners, including Delek (DK) and Western refining (WNR), gained more than 4% in yesterday’s trade. Similarly, US refiners, including Alon USA (ALJ), Holly Frontier (HFC), and Phillips 66 (PSX), gained more than 1% at the close of trade yesterday. In contrast, oil producers tumbled along with oil prices.

The fall in US crude oil prices also boosted US refiners. The Bloomberg index of 11 US independent refiners rose by 2% in yesterday’s trade. The data compiled by Bloomberg suggest that the government could give a tax concession of $119 million in 2016, or 0.5% of next year’s combined pre-tax profits, to the independent refining companies in the Bloomberg index. That’s why independent refiners gained more than integrated oil companies.

Reality

The WTI and Brent spread is at $1.7 per barrel as of December 16, 2015. The US producers need at least a spread of $4 per barrel for the exports to be viable. See “WTI and Brent Oil Spread Makes US Crude Oil Exports Unviable” for more details.

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 volatility in the crude oil market. Read the next part of the series to understand how the Federal Reserve is influencing crude oil traders.

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