A move has been supported by voices within the oil industry as well as Congress to permit the opening of U.S. oil to exportation.
For a long time, the U.S. has been a heavy supporter of liberalized trade, and the oil export ban will be voted on in the House as soon as September of this year. Senate action is expected early next year, marking a milestone that very few thought would be possible within the next decade or so.
Though freely exported U.S. oil will come as a shock to many Americans, it’s likely that there will not be much of an economic stir, particularly so as global oil prices are still hovering at lower than $50 per barrel.
Thanks to the revolution caused by fracking and its knock-on effect on other areas of the oil industry such as pipeline cleaning, the U.S. no longer is a nation of energy-dependency that it had been for 50 years previously. And even though ever since 2007, oil production has increased by over 80% which equates to 9.5 million barrels daily, the U.S. still relies heavily on imported oil.
Nevertheless, petroleum imports, which are now 27%, are at the lowest since 1985.
The biggest exemption under the current U.S. oil export ban is that of Canada, which imports over half a million barrels of crude oil each day, some 14 times more than in 2007, but still only 5.2% of total U.S. production.
Though the Obama administration has yet to take a publicly known position on the exporting issue, over a dozen oil companies, including ConocoPhillips Co., Marathon Oil Corp., Continental Resources, Inc., as well as a number of top lawmakers, argue that unfettered oil exports would ease or even eliminate market distortions in addition to streamlining U.S. petroleum production.
Most U.S. refineries are capable of handling medium- and heavy-grade oil which has been imported from countries in the Middle East or elsewhere. However, the oil that is extracted in the U.S. is lighter and not particularly suited to medium- and heavy-grade equipment.
Nevertheless, U.S. refineries can refine lighter oil though there is a heavy additional cost involved.
Due to this mismatch in addition to the U.S. export ban, refineries in the U.S. invest in domestically produced crude at discounted prices in comparison to oil elsewhere around the globe. And, they continue to sell refined products such as diesel and gasoline to the rest of the world at higher prices.
There is no limit by the U.S. government on the exportation of refined petroleum products, thus exports have increased accordingly since 2007.
Although not everyone agrees, most economists consider that allowing oil exports would likely result in a drop in the price of gasoline, the national average price of which was $2.88 last month (July), representing the lowest price for the month of July since 2010.
Exporting oil from the U.S. would encourage further drilling, thus placing a downward pressure on the price of oil in global markets. This in turn would lower the price of gasoline in those same markets, thereby influencing a U.S. gasoline price drop by as much as 12 cents per gallon, as suggested by a number of recent studies. And that is always a good thing for the U.S. economy.
All the same, what is far harder to predict is exactly how U.S. oil exports would impact U.S. trade balance and also the value of the dollar. A large upward move in oil exports would likely place more pressure on the dollar since more people using the dollar to purchase oil would inevitably lead to more demand for the currency.
This additional pressure would arise when the dollar is already climbing in value, thanks to various other factors, including the anticipation of an increase in U.S. interest rates.
As long as the price of global oil remains low, even if the Obama administration or Congress were to lift the ban within the next few weeks, the amount of oil that U.S. companies would export would likely remain relatively low. Correspondingly, the impact on the broader economy would be less.