A potential ban on crude oil exports is under consideration at the White House, a Democratic Congressman told Bloomberg, adding that "The economics of it makes sense."
Rep. Ro Khanna, chair of the environmental sub-panel of the House Oversight and Reform Committee, disagrees with analysts who have been warning that a ban on U.S. oil exports could backfire, ending up in higher prices at the pump.
"Limiting U.S. crude to the domestic market means fewer potential buyers, and less demand, for that crude," wrote Kyle Isakower, senior VP of the American Council for Capital Formation, for The Hill in a succinct explanation of the backfiring.
"That would likely be followed by a corresponding drop in American production. Since crude oil is traded globally, reduced U.S. production - regardless of where it is ultimately refined into fuels - lowers the global crude supply. Less supply on global markets puts upward pressure on price - not downward. Therefore, banning crude exports is more likely to raise prices than to lower them."
In other words, a ban on U.S. oil exports would only push prices higher. Of course, proponents of the idea would argue that the ban will not be the only measure to bring prices down. The White House announced today a release of crude oil from the strategic petroleum reserve in the amount of 50 million barrels over the course of a few months, according to an unnamed source quoted by Bloomberg.
However, Khanna and several other Democratic lawmakers are certain that a ban on oil exports would have the desired effect. A group of nine House Democrats yesterday wrote a letter to the White House urging the president to ban oil exports and release oil from the SPR.
To warnings that a ban on oil exports would hurt the U.S. oil industry and trap oil that refineries cannot process on its own, Khanna said that refineries could be reconfigured.
By Charles Kennedy for Oilprice.com
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