Contrary to what we’ve heard, the United States does not export more oil than it imports. We’re actually far from energy independent. No amount of embellishing government statistics changes those facts. Read more
American crude and the international benchmark, Brent crude, met at the same price point Tuesday: about $46. West Texas Intermediate crude, the U.S. benchmark, briefly traded below Brent, the first time that’s happened in a year and a half.
Brent closed down 84 cents, to $46.59 a barrel. U.S. crude closed down 18 cents to $45.19. Read more in the Reuters story.
On average, Brent traded at $6.64 higher than WTI last year.
Bloomberg offers a reason why U.S. crude might be on the upswing: The news agency reports that the United States might be edging closer to relaxing the ban on oil exports.
The 40-year-old ban on most U.S. crude exports is set to be loosened after Petroleos Mexicanos, Mexico’s state-owned oil company, asked to import 100,000 barrels a day of light crude. Senator Ted Cruz, a Texas Republican, plans to propose an amendment to a bill approving the Keystone XL pipeline that would lift the export restrictions.
“WTI is relatively strong because it looks like exports will be rising,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone. “The Mexican request could be the first of many.”
Cruz must know something the rest of Washington doesn’t yet know, since President Obama already has promised to veto the Keystone XL bill if Congress passes it.
The U.S. Department of Commerce has relaxed, somewhat, the nation’s four-decade-long ban on oil exports, put in place after the 1973 oil crisis that caused widespread shortages around the United States.
The Obama administration’s move will allow the sale of up to 1 million barrels a day of ultra-light crude. The decision likely will please U.S. drillers and many politicians who have said the U.S. export ban is a relic of an outdated policy.
Reuters reported specifics:
The latest measures were wrapped in regulatory jargon and couched by some as a basic clarification of existing rules, but analysts said the message was unambiguous: a green light for any company willing and able to process their light condensate crude through a distillation tower, a simple piece of oilfield kit.
“In practice this long-awaited move can open up the floodgates to substantial increases in exports by end 2015,” Ed Morse, global head of commodities research at Citigroup in New York said in a research note.
Michael Levi, senior fellow for energy and the environment at the Council on Foreign Relations, shared his thoughts last week on the U.S. ban on oil exports, saying on API’s Marketplace program that with global prices so low, it might not make sense for American drillers to increase production.
“I don’t think anyone knows what the price of oil will be in a year,” he said. “The big news in the oil markets is not just lower prices — it’s the return of volatility, and volatility works in both directions. … In the worst case, relaxing the ban doesn’t do anything.”
The story on the Marketplace website, by Dan Weissman, leads with the Government Accountability Office report stating that relaxing the 40-year-old export ban could lower domestic gasoline prices. Some experts disagree with that prediction, and in an event, the GAO report was written more than a month ago, before oil prices began to fall sharply on their own.
Breaking Energy’s Jared Anderson added:
“US producers might not want to sell into a bear market, as a sustained period of low oil prices would hurt their profitability and could put the brakes on US oil output growth. So changing the policy on exports might not alter physical balances and the price signals they send.”
My favorite automobile service group — the AAA — has once again treaded without fear or trepidation into analysis. Remember earlier, when it suggested that E15 harms engines, based on what looked like an oil-industry-generated study? The AAA’s methodology was weak and its conclusions suspect, a judgment supported by the EPA’s response. According to the agency, AAA’s conclusions were erroneous and based on a limited sample. EPA’s own findings were generated from a relatively large sample of cars, indicating that E15 is safe for most engine types and reaffirmed the wisdom of its approval of E15 usage.
I was surprised to find an article in Oil Price by blogger Daniel Graeber, based to a large degree on comments from AAA’s Michael Green suggesting that the oil shale boom has prevented gas prices from going higher than they are now. Graeber approvingly quoted Green, who said, “Sadly, the days of cheap gasoline may never return for most American drivers despite the recent boom in North American crude oil production.” Assumedly, Green meant that the cost of drilling tight oil will remain high and the costs per barrel of oil will follow suit.
Green apparently went on to indicate that political leaders, particularly, members of Congress who argue for a drill-baby-drill policy, are wrong to link more wells to significant price relief for folks who find gas costs a real problem.
The AAA is right when it suggests that, despite the oil shale boom and signs of increasing demand in America, refineries are sending increased amounts of oil-based products overseas. Understandably, their patriotism doesn’t extend to accepting a lower price for oil in the U.S. when they can get higher prices overseas.
The article appears inconsistent, when at one point it mentions that crude oil inventories are running above average, and later blames current exports for low supplies and low supplies for preventing a drop in prices at the pumps.
Both are correct in indicating sales of oil products abroad probably do have an effect on costs-up to now probably marginal. Certainly, if Washington extends export privileges, increased sales of oil abroad may have a more significant impact on consumer costs. More relevant, however, concerning gasoline costs at the pump, will be economic recovery in the U.S., investor speculation and the oil sector’s ability to manage prices.
Cheap oil has been, recently, and likely will be in the future, a fantasy. The cost of oil per barrel has hovered at around $100 and upward for an extended period, and drilling in shale is relatively expensive. Continuous exogenous and existential (don’t you like those words — they create great passion and emotion) threats from the Middle East and Eastern Europe, also, will likely tilt oil prices upward in the near future.
I would commend the AAA, assumed by many to be the leading advocate for automobile owners in the nation, for grasping the fact that the behavior of producers is likely to lead to higher gas costs and create burdens, particularly for low and moderate-income groups. Now with this knowledge, shouldn’t the AAA argue for breaking oil’s near monopoly on fuel? If the AAA was really interested in helping vehicle owners lower their cost of fuel, it might take the lead in arguing for choice at the pump. Wouldn’t it be great if they really stood up for more open fuel markets as well as alcohol-based transitional fuels, such as ethanol and methanol? Competition at the pump from flex-fuel vehicles, combined with conversion of older vehicles to flex-fuel cars would, over time, mute increases in gas prices and, at the same, time generate environmental benefits for a better America. Support for alcohol-based fuels is consistent with support for renewable fuels, if one is concerned about the environment and GHG emissions. Let’s bring them on as fast as we can. But let’s acknowledge that renewable fuels are not really ready yet for prime time. They are too expensive for many Americans and their technical limitations, particularly concerning electric batteries, are not yet coincident with the desires of most Americans.