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Crude oil swap with Mexico approved

The United States will start to export light crude oil to Mexico as part of a crude oil swap, leading the U.S. another step closer to lifting the ban on exporting crude oil. The deal has already been approved by the Obama administration, although the details about how many barrels will be allowed in the swap is still to be determined, sources told The Wall Street Journal.

Petroleos Mexicanos SA (Pemex) asked Washington for permission to start bringing up to 100 MBOPD of U.S. oil into Mexico eight months ago. The U.S. Commerce Department told members of Congress it intends to approve the application from Pemex for the exchange of light crude oil for Mexican heavy crude. The deal does not require Congressional approval since crude oil swaps are not technically exports.

A source briefed on the matter said that crude oil shipped to Mexico must first be refined within that country and not re-exported to any other nation. The Commerce Department meanwhile continues to reject similar crude oil swap applications from other countries.

Jose Manuel Carrera, Oil

Jose Manuel Carrera

The head of Pemex’s commercial arm, Jose Manuel Carrera, said the decision is a big step in the direction of creating a North American energy bloc. “Once both countries have this experience and see the benefits, it will create a deeper understanding of the merits, and people will feel more comfortable with them,” he said. “This is a small step, but it’s also very significant.”

Countries from Japan and South Korea to Poland have expressed interest in buying American oil, in part so they don’t have to rely on countries like Russia, where politics are making it increasingly difficult to do business. “Other countries quite clearly want to get in on the benefits – geopolitical and economic,” said George Baker, executive director of Producers for American Crude Oil Exports. “They want in on this American oil renaissance for good reasons.”

Lifting the crude export ban

The U.S. Senate Committee on Energy and Natural Resources (ENR) passed a bill at the end of July that would end the ban on the export of U.S. crude oil. The bill passed through the ENR with a 12-10 vote, largely along party lines, but now the bill faces a full Senate.

If the bill hopes to pass the full Congress, it will need the support of Congressional Democrats, who remain reluctant to remove the ban, citing concerns that doing so may cause the price of motor gasoline to rise. Many studies, including those from Brookings Institute and Rice University, have found that lifting the ban would likely lower the cost of gasoline once WTI was traded in an open market.

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