U.S. refineries are preparing themselves for the possibility that President Biden could impose a ban on fuel exports after the White House dangled the threat of the ban in front of refiners. No action has been taken to date, but with the mid-terms coming up and fuel prices continuing to rise, this could soon change. Earlier this month, the White House requested that the U.S. Department of Energy (DoE) assess the potential impact of banning fuel exports – including gasoline, diesel, and other refined petroleum products. The move suggested that President Biden may be preparing for a ban. This comes ahead of the mid-term elections, at a time when Biden is concerned about fuel prices rising even higher, and as the U.S. public battles with growing inflation levels and general economic uncertainty.
In August, the U.S. Secretary of Energy, Jennifer Granholm, addressed a letter to U.S. refining companies pleading with them to increase their domestic inventories of gasoline and diesel and to shift focus away from exports. In her letter, she pointed to the potential for “emergency measures” to be taken if they could not achieve this goal. In October, she suggested that restrictions on energy exports were a possibility, and although they were not being considered “at this time,” that may change if deemed necessary.
Refineries across the country are uncertain about whether Biden will call for a ban on fuel exports in a bid to manage high gasoline and diesel prices. Due to the ongoing insecurity, U.S. refineries are now putting contingency plans in place to be prepared for any sudden decision from the White House.
One oil executive explained the situation: “We don't have a place to put excess fuel in the U.S," adding, "We would have to slow refinery runs to make less diesel and gasoline.” The DoE is in discussions with refineries about the impact a fuel export ban might have on the country’s energy markets, while those from the refining sector widely believe that if a ban was introduced it would not lower prices, but it may be detrimental to the sector as it would cut off foreign partners, such as those in Latin America, that continue to rely on U.S. fuel.
Mike Sommers, President of the American Petroleum Institute, stated: "Banning or limiting the export of refined products would likely decrease inventory levels, reduce domestic refining capacity, put upward pressure on consumer fuel prices, and alienate U.S. allies during a time of war.”
Biden has been putting pressure on refiners to take action to reduce fuel prices in recent months, which were exacerbated by the Russian invasion of Ukraine and subsequent sanctions imposed on Russian energy. But refiners have been struggling to respond to the pressure, suggesting that the dramatic change in demand during the pandemic has had a knock-on effect on the post-pandemic refining industry. The oil executive explained how the landscape has changed, “The U.S. lost 1 million barrels of refining capacity since COVID.” In addition, more recently, extreme weather events, such as Hurricane Ian, have threatened U.S. refining capabilities further.
If Biden was to introduce an export ban, it would be the most radical step taken by his administration to combat rising fuel prices. The plan has been widely criticized by both oil producers and energy experts who believe the move could drive prices even higher in the long term. In addition, it could lead to refinery closures, job losses, and productivity declines. At the same time, Biden has blamed the oil industry for making massive profits as consumers suffer but has failed to respond to the matter by introducing a windfall tax or similar policy.
The U.S. refining industry is experiencing multi-year low inventories. Meanwhile, in October, gasoline prices rose to around $0.60 a gallon higher than in the same period in 2021 – although prices have fallen from their peak in June this year. But experts are concerned that if U.S. exports are reduced, the global fuel supply will tighten even further, raising international crude oil prices. As the price of oil makes up over 53 percent of the price of a gallon of gasoline, it could send fuel prices soaring.
The biggest U.S. oil trade unions stated last week that they have “significant concerns” about the potential move and asked top officials in the White House to take the ban off the table. In recent months, tensions between the Biden Administration and the oil industry have risen, with rising fuel costs and high oil industry profits further aggravating the situation. The oil groups stated: “Banning or limiting the export of refined products would likely decrease inventory levels, reduce domestic refining capacity, put upward pressure on consumer fuel prices, and alienate U.S. allies during a time of war. For these reasons, we urge the Biden administration to take this option off the table.”
The White House seems unwilling to work with the oil industry, leaving refiners in limbo, uncertain about whether their exports could soon be curbed. The Biden Administration and the oil industry are at odds as Biden pursues a decrease in fuel prices at any cost, accusing oil majors of profiting at the expense of the consumer.
By Felicity Bradstock for Oilprice.com
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