The U.S. government just took the largest step yet to erode the ban on crude oil exports.
The Department of Commerce official told Reuters that the federal government is "acting favorably on a number of applications" that are seeking an oil swap with Mexico. In other words, the Obama administration plans on greenlighting the limited export of light oil to Mexico, and in exchange the U.S. will import heavier Mexican oil.
A ban on exports from the U.S. has been in place for over four decades. Only Canada and Mexico have certain exemptions under the law. But in this case, the government needs to grant permits for swaps. Related: PV Solar Could Have Some Serious Competition
Mexico sought the swap in order to obtain higher-quality light oil for its refineries. Heavier oil from Mexico also works well with American refineries equipped to handle that type of crude.
The Commerce Department is expected to finalize the licenses, which are good for one year, at the end of August. Although the Reuters source did not reveal how much oil would be allowed to be exported under these licenses, Mexico's state-owned oil company Pemex had applied for about 100,000 barrels per day earlier this year. Related: The "Thin Green Line" Holding Back U.S. Energy Exports
The move is just a small one for now. Companies swapping oil have to take in a barrel for everyone that they export, so it is not clear the U.S. will be able to achieve large-scale exports on a net basis. Still, the move is a welcome one for the industry, particularly for drillers in South Texas that produce lighter forms of oil and have been faced with a glut and depressed prices. A swap for Mexican oil will provide a small stimulus to drilling. And with oil prices at six-year lows, any help will be welcomed in the oil patch. Related: This Nation Could Finally See A Shale Breakthrough
The bigger effect could be in the political arena. The U.S. Congress, led by Sen. Lisa Murkowski (R-AK) in the Senate, along with the support of Speaker John Boehner (R-OH) in the House, are moving legislation forward that will remove the ban on exports that has been in place since the 1970s.
By approving the swap of oil with Mexico, the Obama administration could be signaling its intent to work with the Congress on this issue. No doubt the move will add further momentum to the legislative push.
By Charles Kennedy of Oilprice.com
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Charles is a writer for Oilprice.com More