The Energy Information Administration (EIA) published its findings regarding the removal of the crude oil export ban on September 1, 2015, finalizing a series of studies that have spanned dating back to May 2014. The EIA took a cautious approach in delivering its findings, explaining repeatedly how the price of crude oil could have wide implications on the effects of removing the ban. However, the findings overall add to the oil and gas industry’s reasoning to lift the ban – a ban that referred to by many as a relic of the 1970s.
Highlights of the EIA’s findings include:
Petroleum product prices (including gasoline) in the United States would be either unchanged or slightly reduced.
A key argument made by ban supporters carries no weight, says the EIA. The reasoning: gas prices are tied to Brent prices, rather than West Texas Intermediate prices. If the ban were to be lifted, the additional American supply would narrow the spot price spread by pulling Brent lower. As a result, American consumers would be in line to benefit.
Refiner margins would shrink
Domestic refineries are posting earnings records amid the crude price slump, benefitting directly from the Brent/WTI spreads mentioned above. Airline companies with their own refineries posted profits in recent quarters based solely off of cheap oil. The benefits have prompted such airlines to possibly add capacity to their fleet in an attempt to strike while the iron is hot.
An increasing WTI/Brent spread would encourage producers to ramp up production
A spread greater than a $6 to $8 barrel range would spur increased North American activity in an attempt to jump on differentials. OAG360 notes the increased activity would create more work for a bruised oil and gas industry that has been forced to lay off an estimated 150,000 workers worldwide.
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