The 40-year-old ban on US oil exports officially ended last Friday, when President Barack Obama signed into law a $1.1 trillion spending bill of which ending the 40-year old prohibition was a part. In light of this significant development, the EIA republished the key findings of an analysis it conducted earlier this year that assessed the potential impacts of ending the ban.
Brent – WTI Spread Is The Key Determinant
The EIA analyzed four different baseline cases in the September report. Each of them employed different oil price and US production level assumptions. These factors influenced forecasts on the difference between Brent and WTI prices. And it is precisely the Brent-WTI spread that is the principal factor in determining whether exporting US oil is feasible.
-10.6 M/bpd? Lifting The Ban Wasn’t Worth It
The key takeaway from the report was that if US production stays below 10.6 M/bpd, allowing US oil exports will have a negligible effect on the O&G industry or the US economy. However, if output rises above 10.6 M/bpd, crude exports could yield a boost in domestic production, a decrease in refined products exports and slightly lower US gasoline prices.
“The analysis finds no difference between projections with and without current export restrictions in two analysis cases in which projected production with current export restrictions remains below 10.6 M/bpd over the next decade,” the report said.
+10.6 M/bpd? Lifting The Ban Was Worth It
But in the two higher production scenarios, where domestic output in 2025 ranges between 11.7 M/bpd and 13.6 M/bpd, absent US export restrictions, increased domestic production, higher crude oil exports, reduced product exports, and slightly lower gasoline prices to US consumers, could result.
“In two other cases where domestic production in 2025 ranges between 11.7 million b/d and 13.6 million b/d, projections without export restrictions show increased domestic production, higher crude oil exports, reduced product exports, and slightly lower gasoline prices to U.S. consumers compared to cases that maintain current crude oil export restrictions,” the report said. These two cases have considerably higher baseline production based on more optimistic resource and technology assumptions, the EIA said.
Petroleum product prices in the US, including gasoline prices, will likely be either unchanged or slightly decreased by the removal of the oil export ban. The EIA notes that petroleum product prices throughout the US have a much stronger relationship to Brent than to WTI.
In the two high production cases, the elimination of the US oil export ban narrows the Brent-WTI spread by raising the WTI price. As domestic producers respond to the higher WTI price with higher output, the global supply/demand balance becomes looser (more supply than demand) unless raised domestic production is completely offset by production reductions elsewhere. The looser balance implies lower Brent prices. This in turn yields lower petroleum product prices for US consumers, the EIA said.
Trade In Crude Oil & Petroleum Products
Combined net US exports of crude oil and petroleum products are generally higher in cases with higher levels of US oil production regardless of US crude oil export policies, the report said. However, crude oil export law materially impacts the mix between crude oil and petroleum product exports, especially in the two higher production cases, which have high levels of domestic output.
Crude oil exports tend to represent a larger share of combined crude oil and petroleum product exports in cases in which oil exports are unrestricted, the report said. Further, in cases where the level of domestic oil production rises with the removal of the oil export ban, total combined crude and product exports are higher than in similar cases with previous crude oil export restrictions in place.