Barrasso Gets Agreement To Lift Oil Export Ban

But tucked among many other provisions of the $1.1 trillion omnibus bill are items that deal with policy instead of the budget, and one of them is the repeal of the ban on oil exports.

The House and Senate on Tuesday evening reached a deal on tax and spending plans that included an end to the oil-trade limits that were implemented in 1975 after the Arab oil embargo.

With that context, the enactment of this law could significantly open the worldwide market for USA domestic crude oil and potentially create greater parity between domestic (e.g., WTI) and global (e.g, Brent) crude oil prices.

The move could benefit countries like India in the long run, giving it another option to purchase crude oil from non-Middle eastern countries.

A major reason for the momentum is the fact that gasoline prices are down by half since peaking in 2008 at $4.00 USA per gallon. The U.S. exports almost 500,000 barrels a day, according to the U.S. Energy Information Administration. Yet we don’t think that the immediate effects will be great on prices, unfortunately for Louisiana’s oil patch. That’s because American oil producers can’t now export to overseas refiners who are willing to pay a bit more.

An analyst note from RBC Capital Markets today speculated that the likely destination for exports would be countries like Venezuela, which now imports light sweet crude from West Africa to blend with its ultra-heavy grades, and Mexico, given that the country’s refining sector is better geared to handle light crude grades as opposed to the heavy crude produced domestically. In 2015 production volumes stayed at the same level due to falling oil prices.

“It is a dirty deal for dirty energy right after 190 nations, including the USA, committed to do something to address climate change”, said Jeff Tittel, executive director of the New Jersey Sierra Club.

The move to abolish the ban on oil exports comes as crude prices have plummeted to some of its lowest points in years and technology has unlocked vast, formerly unreachable reservoirs of oil, creating an overabundance of US oil. This is big win for American jobs and for our energy industry. Studies show lifting the ban would add hundreds of thousands of jobs annually and billions to GDP while also reducing domestic gas prices.

Some lawmakers are looking to ease anger from refiners by offering tax credits to the industry, especially in the Northeast. Some refiners, which have enjoyed wide profit margins because of the discounted oil, have said the ban should remain in place.

House Democrats generally characterized the effort as a “giveaway to Big Oil”, but the Associated Press reported that they might be willing to incorporate it in a final package that also includes conservation funding and extended renewable energy tax credits. It also consumes about 19 million barrels of crude and petroleum products a day, making it the largest consumer in the world.

“This really is a case of not if but when this is going to happen”, said McMonigle, who is now a senior energy analyst at Potomac Research Group.