BLOOMBERG – The U.S. Energy Department said the nation’s gasoline prices are linked to international crude oil, a conclusion that backs those in favor of lifting 39-year-old restrictions on crude exports.
The analysis by the Energy Information Administration, the department’s statistical arm, is the latest in a series of reports exploring the ramifications of ending the near-total ban, which was put in place in 1975 amid gasoline shortages following the Arab oil embargo.
Overturning the restrictions could lift U.S. oil prices, which have traded below global counterparts since 2010 as booming shale production has been mostly trapped within the country’s borders. That could mean $16 billion a year in extra revenue for producers, while refiners who have profited off cheaper domestic oil would lose their advantage. Higher production may follow, which could reduce global oil prices, the EIA said.
“The EIA is saying that exporting oil won’t hurt the consumer,” said James Williams, an economist at WTRG Economics, an energy-research firm in London, Arkansas. “It would benefit the oil industry, which means more jobs.”
The U.S. average price at the pump is $3.01 a gallon, Heathrow, Florida-based AAA said on its website. It’s dropped 18 percent from June to the lowest since December 2010. The gap between West Texas Intermediate, the U.S. benchmark, and Brent, the global marker, narrowed to $5.06 a barrel at 4:02 p.m. in New York from $5.35 earlier.
“Brent crude oil prices are more important than WTI crude oil prices as a determinant of U.S. gasoline prices,” the EIA said in the report. “The effect that a relaxation of current limitations on U.S. crude oil exports would have on U.S. gasoline prices would likely depend on its effect on international crude oil prices, such as Brent.”
Senator Lisa Murkowski, an Alaska Republican, said the study supports her push to loosen U.S. rules that restrict the sale of domestically produced crude oil overseas.
“If domestic gasoline prices are tied to the Brent worldwide index price, then exporting U.S. oil to our friends and allies will not raise gasoline prices here at home and should, in fact, help drive down prices,” said Murkowski, who stands to be in charge of the committee with jurisdiction over the issue next Congress if Republicans retake the majority in the upcoming mid-term election.
Congress put the restrictions in place in the Energy Policy and Conservation Act of 1975. Exceptions exist, most prominently allowing exports to Canada, and the U.S. is shipping the most crude abroad in 57 years. President Barack Obama has wide leeway to set aside the restrictions if he believes it’s in the nation’s interest to do so.
Lifting the ban faces challenges in Congress. Democratic Senators Edward Markey of Massachusetts and Robert Menendez of New Jersey have led calls to keep the crude limits in place.
It isn’t clear how many Republicans back the efforts by Murkowski of Alaska to open the door for exports. Her colleague John Hoeven of North Dakota, the nation’s No. 2 oil-producing state, has said he wants more assurances that any exports wouldn’t significantly raise gasoline prices.
Proponents of easing restraints, such as Exxon Mobil Corp. (XOM) and billionaire Harold Hamm’s Continental Resources Inc. (CLR), argue that the law is no longer necessary because horizontal drilling and hydraulic fracturing in underground shale rock layers have boosted U.S. oil production 66 percent in the past five years to the highest level since 1983.
The oil from that shale is mostly low density and low in sulfur, making it easier to refine. Many U.S. refineries have spent billions in recent decades upgrading equipment to be able to refine heavy, high-sulfur crudes that are cheaper because of their lower quality.
U.S. oil refiners including PBF Energy Inc. (PBF), Delta Air Lines Inc. (DAL)’s Monroe Energy LLC subsidiary and Philadelphia Energy Solutions, a joint venture of Carlyle Group LP (CG) and Sunoco Inc., have formed a group to oppose any easing of the export ban.
The refiners released a report Oct. 2 estimating that the nation’s oil processing plants have the capacity to absorb another 3.1 million to 4.3 million barrels a day of the light crude being pulled out of U.S. shale formations.
“Gasoline is more tied to Brent,” said Williams. “All the refineries on the Gulf Coast are exposed to international prices.”