Kevin Robinson-Avila published the following article in the Albuquerque Journal on Dec. 22, 2015. It is a thoughtful review of the recent lifting of the ban on US oil exports. In synopsis, Robinson-Avila explains that the reason the domestic oil companies wish to export is because current prices in this country are lower than foreign prices, so they hope to realize more profits by selling overseas.
Contrary to disingenuous claims by the Sabal Trail/FERC/EPA fiasco, there is no need for new pipelines to serve domestic needs. The fracking fervor in recent years has produced an oil glut which does not serve the purposes of the oil companies.
Robinson-Avila submits that the exportation of cheap US oil could very possibly ignite an immediate reaction from OPEC, causing an even greater reduction in prices. This step in the US/OPEC price war would of course, be to the disadvantage of the US oil industry, since no foreign country would by US oil at higher price that what OPEC charges.
Scant benefit expected from lifting oil export ban
Kevin Robinson-Avila | Albuquerque Journal
The federal government is preparing to lift its ban on crude oil exports for the first time in 40 years, but most producers and industry analysts expect little benefit, at least in the short to medium term.
Congress agreed to suspend the ban in its new omnibus spending bill approved on Friday and since signed by the president. That could pave the way for the first crude exports since 1975, when the federal government originally imposed restrictions to shore up domestic supplies in response to the Arab oil embargo that decade.
U.S. producers have lobbied heavily to eliminate the ban, given that modern drilling technologies have opened up vast new U.S. crude reserves. That has pushed domestic output to its highest levels since the early 1970s, contributing to global oversupply and a fierce price war with the Organization of Petroleum Exporting Countries that began last year.
To sustain U.S. production, oil companies want to access foreign markets where prices are higher than that paid by domestic refineries.
But the battle with OPEC has sharply cut prices across the board, greatly narrowing the gap between what foreign refineries now pay for Brent oil — the international benchmark — and what domestic ones pay for U.S. benchmark West Texas Intermediate.
The price differential has shrunk to less than $3 per barrel, down from $20 or more a few years ago, said Tom Kloza, chief petroleum analyst with the Oil Price Information Service in Maryland. As a result, the benefits for accessing foreign markets are now minimal for U.S. producers.
“At this point, with the compression of crude-oil prices across the board, the prices for Brent and West Texas Intermediate are very close to one another,” Kloza said. “That’s made the advantages of eliminating the export ban a moot point for the foreseeable future.”
U.S. exports could actually aggravate the price war with OPEC, driving markets even lower, said Daniel Fine, associate director of the New Mexico Center for Energy Policy at the New Mexico Institute of Mining and Technology.
“OPEC will likely move now to retaliate against U.S. crude exports,” Fine said. “U.S. producers will be unable to compete against severe price discounting by OPEC, particularly by Saudi Arabia and Iran. No country or refiner out there is going to take U.S. oil at a premium price against discounted prices from OPEC.”
Given the sluggish world economy, adding U.S. crude to foreign markets just as Iran is preparing to restart exports to western countries could significantly aggravate global oversupply, said Gregg Fulfer, Lea County Commission chair and owner of the Fulfer Oil and Cattle Co. in Jal.
“Supply and demand drives everything,” Fulfer said. “We have a world glut and a down economy, so I don’t see that lifting the export ban is going to help us a whole lot.”
Still, if West Texas Intermediate climbs even slightly to meet the price of Brent, it will offer some benefit to local producers who have been hammered by plummeting prices since last year, said Raye Miller, president of Regeneration Energy Corp. in Artesia.
“At this point, every little nickel is a benefit,” Miller said. “I don’t think it will have a great impact, but I think it will be a small lift.”
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This article was written by Kevin Robinson-Avila from Albuquerque Journal and was legally licensed through the NewsCred publisher network.