Sentiment surrounding the OPEC deal…
Oil prices were down early…
In 1975, President Ford signed a ban on oil exports. After OPEC had imposed an embargo on U.S. oil, fuel prices were skyrocketing and reserves were almost depleted.
In 2015 oil prices are considerably low in historical terms and reserves reached a record high. The United States is importing just one-fourth of its oil demand.
Sen. Heidi Heitkamp (D-ND) and Sen. Lisa Murkowski (R-AK) introduced a bipartisan bill to lift the oil export ban earlier this year. Another bill, called American Energy Renaissance Act, was introduced by Sen. Ted Cruz (R-TX) in March 2015 to liberalize the exports of oil and natural gas. The Murkowski-Heitkamp bill was supported by the Republican Party and by several Democratic congressmen, such as Senators Mark Warner and Joe Manchin. On October 9, the House of Representatives voted to reverse the ban on oil exports.
This month Congress struck a deal to lift the oil export ban in exchange for increased environmental rules and an important extension of tax credits for solar and wind energy. This way both the oil and the renewable energy industry would benefit from the legislation.
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The Chairman of the House Energy and Congress Committee stated on Wednesday that lifting the ban would increase jobs nationwide.
Opponents of U.S. energy exports claim that, if oil and gas were exported, gasoline prices would increase causing hardship for consumers. However, recent reports determined that oil exports would not produce a significant impact on gasoline prices.
Many people also believe that low oil and gas prices are slowing the new fossil fuel revolution, for the benefit of the renewable energy industry. It is quite the contrary. Renewable energy benefits from a peak oil economy, not an economy characterized by oil and gas abundance. In fact, very low fossil fuel prices make renewable energy prices less competitive and postpone the transition to a green economy by many years. Hence, fossil fuel exports are not incompatible with the development of renewable energy.
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Foreign demand of American oil would increase crude oil prices. However, such increase would affect only the West Texas Intermediate (WTI), an index for domestic crude, not the Brent Crude and the OPEC Reference Basket (ORB), which are benchmarks for foreign oil. Competition between foreign oil suppliers and American exporters would lower the prices of the Brent and ORB indexes. As a consequence, the spread between WTI and Brent prices would be reduced, WTI would be increasingly used as a benchmark for international transactions, and OPEC would not be the sole arbiter of global oil supply and demand. The real benefits will be seen in the long-term because in the short-term foreign oil may become cheaper than U.S. oil, limiting the market for American crude.
Last summer Russia was discreetly invited to join OPEC but declined to be a member of an organization that is heavily influenced by Saudi Arabia. If Russia had accepted, the U.S. would have been the only large oil producer to be excluded from the club of oil exporting countries.
Although some OPEC members (such as Kuwait, Saudi Arabia, and the UAE) are strategic partners of the United States in the Middle East, American energy corporations shall have the right to pursue their economic interests in the context of free market competition.
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As an oil exporter, the United States would be able to play a major role in setting global oil prices and OPEC decisions on oil production would have a lesser influence in the energy markets.
A congressional vote is not necessary to lift the ban, which can be lifted by the Department of Commerce. In 2013 the Department of Commerce already relaxed its rules allowing the export of lightly refined oil, called condensate. However, because of its high gravity, condensate has a limited market.
A good compromise to balance domestic consumption with foreign demand would be the introduction of oil export quotas (for instance, allowing producers to export up to 30 or 40 percent of their output).
But Congress is set to lift the ban entirely as part of the budget deal. After 40 years, America is ready to be an oil exporter again.
By Francesco Stipo for Oilprice.com
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Francesco Stipo is a lawyer, author and energy expert. He published several articles on energy and international affairs in American journals and newspapers and is frequently invited…