Traders are betting on the possibility the U.S. administration will ban oil exports, Bloomberg has reported, citing a pile-up in options contracts that would yield profits if U.S. West Texas Intermediate futures fall against Brent crude.
Some, according to the report, are betting that WTI could fall to as much as $10 below Brent crude. The last time this happened, Bloomberg notes, was in 2018 and 2019, when oil producers in the Permian were struggling with a pipeline shortage. At the moment, the spread between Brent and WTI is less than $4 per barrel.
The idea of banning crude oil exports was floated last month, with Democratic Rep. Ro Khanna telling media that it was being considered at the White House and that “The economics of it makes sense.”
According to Khanna, refiners could be reconfigured to work with domestic oil.
The industry is naturally dead set against a ban on exports. Analysts are also advising against it. According to both the industry and analysts, a crude export ban would upend the global flows of crude, result in much lower U.S. benchmark WTI crude prices, and further discourage the American oil industry from investing in production while undermining U.S. leadership and leaving an even larger share of global oil supply in the hands of OPEC and its OPEC+ partners.
This is not a situation anyone in Washington would like to see, much less participate in, regardless of their attitude towards the local oil and gas industry because ultimately, a ban could push prices at the pump higher by shrinking locally available oil.
Most observers don’t believe the Biden administration would go as far as to impose a ban on oil exports, and according to the Bloomberg report, many skeptical traders see the options bets on a ban as buying a lottery ticket.
By Irina Slav for Oilprice.com
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