The promise of a lifting of a long term ban on exporting US crude oil could improve conditions in the tanker sector, but don’t expect a quick fix
The reversal of a 40-year ban on US crude oil exports is within reach, which could prove beneficial for tanker operators in the medium term.
Congressional leaders reached a deal this week on a package of spending and tax legislation that would lift the ban on crude oil exports as well as avert a US government shutdown.
Bill HR 2029 promotes a $1.1tr spending bill for the fiscal year postdated from October 1 this year and a separate $622m measure to revive a series of expired tax breaks. The spending plan will fund the government through to September 2016.
The package will also lift the crude oil export ban introduced in the mid-1970s after Middle Eastern countries embargoed crude oil sales to the US in protest at US support for Israel. This was at a time when US oil production was falling, oil imports were rising, and ‘peak oil’ was thought to be just around the corner. US oil production now stands at in excess of 9m bpd, up from 5m bpd in 2008; proven reserves have risen to more than 36bn barrels, up from 19bn in 2009, the highest level since 1970.
Matter of policy
The White House and President Obama had been public in their opposition of removing the restrictions on crude oil exports, primarily on “procedural grounds” according to White House press secretary Josh Earnest. The White House believes that the administration already has this authority and as such feels that the legislation is unnecessary.
“One reason that we’re not overly concerned with the substance of the lifting of the oil export ban is that the US already exports 4.3 million barrels a day of refined petroleum product.” There are also waivers in place that allow the export of 500,000 bpd of crude oil.
“The fact is there was already substantial petroleum products, both refined and unrefined, that were already being exported.”
US oil producers have lobbied hard to put an end to restrictions on exports of unrefined crude. But it won’t be an immediate fix for international tanker operators as domestic refineries have increased their processing of US crude to compensate for a slump in oil prices.
Also, US West Texas Intermediate benchmark crude is trading only slightly lower than Brent crude so exporting crude will not do much to improve the lot of domestic oil producers. In September 2011, WTI was trading at a record $24 per barrel less. However, when oil prices recover there will be significant potential for gains through US oil exports.
That said, the proposed legislation contains a “safety valve” permitting the president to re-impose controls for up to one year at a time if exports cause a sustained increase in domestic oil prices above world market levels and price increases have or threaten sustained material adverse effects on employment in the US.
The House will vote on the tax measure and the spending bill this week. While the passage of the spending bill isn’t guaranteed, House Appropriations Committee chairman Hal Rogers has predicted it will have enough votes to pass.