For many American oil executives there is something the Obama administration can do: abandon the 1970s-vintage restrictions on exports of US crude. US government analysis suggests lifting those curbs would make little difference to domestic oil producers. Many of the companies themselves take a different view.
Earlier this
month, the US Energy Information Administration published its analysis of the
issue, which has been rapidly moving up the political agenda thanks to growing
support — principally from Republicans — in Congress.
The good
news for US oil producers was that the study concluded there were no plausible
scenarios in which liberalisation of crude exports would push up fuel prices
for American motorists. Petrol and other refined products can be exported
freely from the US, so their prices are already set in world markets.
The bad news
was that if production stays reasonably close to present levels, ending export
restrictions would not raise either the price or the output of US crude.
As Lynn
Westfall, the EIA’s director for energy markets, puts it, liberalisation of
crude exports “won’t do any harm, and could even do a little bit of good.” The
EIA’s argument is that in its “reference case”, with projected average US
production of 10.4m barrels per day for 2020-25 — up from about 9.3m b/d this
year — domestic crude could all be processed by domestic refineries.
That means
export restrictions would not distort the market, and in the long term the
spread between US benchmark West Texas Intermediate crude and
internationally-traded Brent should remain about $6 per barrel, reflecting the
difference in transport costs to world markets.
It is only
if US production were to go above 11.7m b/d that the export restrictions would
really start to bite because US refineries would be swamped, driving down WTI
relative to Brent and penalising US producers, the EIA says.
Oil
companies have several criticisms of that analysis. One is that the EIA’s
reference case production is too low. While US output is falling at the moment,
they say, it is quite possible that it will rise high enough for export
restrictions really to hurt.
Another
concern is the likely impact of refinery shutdowns for planned maintenance or
unplanned outages. While US refiners might be able to process enough domestic
crude in normal times, the producers say, there could be periods when their
capacity is overwhelmed.
Finally, oil
companies say the EIA’s estimate of an equilibrium WTI / Brent spread
understates the potential gains from exporting. Oil from the Eagle Ford shale
of south Texas could be sent to the coast at nearby Corpus Christi and on to
markets in Latin America for just $3-$4 per barrel, they say, offering a few
extra dollars profit even if the discount of WTI to Brent sticks at that $6
level. (businessday)
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