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Page added on August 15, 2015
US Loosens Longtime Ban on Oil Exports
Energy companies eager to export American crude oil scored a victory Friday when Washington agreed to allow them to trade oil with Mexico, in a further erosion of the four-decade ban on selling U.S. crude overseas.
The U.S. Commerce Department told members of Congress it intends to approve an application by the national oil company of Mexico to exchange heavy oil pumped there for light crude pumped in the U.S., according to people familiar with the matter.
The deal, which will give American drillers a new market for their product, is a significant step toward lifting the export ban that dates to the Arab oil embargo of the 1970s, when the U.S. suffered though gasoline shortages. Since then, the U.S. has allowed few overseas shipments of oil, with a current exemption for Canadian refineries, which send a lot of gas and diesel back to the U.S.
The laws barring overseas sales have come under pressure in the past year as American drillers pumped surging amounts of crude from shale formations, helping to create a global glut that has brought down oil prices by half in the last 14 months. Congress is slated to take up the matter later this year, and several top lawmakers back unfettered domestic oil exports.
U.S.-traded oil closed at just over $42 a barrel Friday, down from over $100 barrel in June 2014. Global oil prices remain more than $6 above the price of U.S. crude, and that difference has been as high as $20.
The swap deal with Mexico doesn’t need congressional approval. Such oil trades—which aren’t considered true exports because the U.S. is getting oil in return—were contemplated under the original ban legislation, but haven’t taken place before.
The deal illustrates how Washington is trying to catch up to a dramatic new energy abundance in the U.S., said Daniel Yergin, vice chairman of IHS Inc., an energy consultancy. “It’s pretty clear, directionally, where things are headed,” he said. “This ban becomes more and more awkward and ill-fitting. It doesn’t fit reality.”
Mexico, which used to produce large quantities of light oil, now pumps mostly heavy crude. It plans to blend U.S. light, sweet crude with its extra-heavy oil, which will help its refineries make more gasoline and run more efficiently.
The exact volume of U.S. oil that can go to Mexico wasn’t immediately clear Friday. A Mexican official confirmed the Obama administration has approved Pemex’s request, but said the country is still waiting for details about how much oil it can trade.
Petróleos Mexicanos SA, known as Pemex, has asked Washington for permission to start by bringing in as much as 100,000 barrels of U.S. oil a day. Though that is a fraction of the 9.5 million barrels the U.S. is pumping daily, it amounts to more than 36 million barrels a year.
Mexico first asked for oil swaps with the U.S. eight months ago.
The Commerce Department is rejecting applications from other countries that sought permission for similar swaps, according to a person briefed on the matter, adding that American oil sent to Mexico must be refined within that country and not re-exported to any other nation.
The U.S. already imports almost 800,000 barrels of oil a day from Mexico, mostly to big refining centers such as the Port of Houston.
The head of Pemex’s commercial arm, José Manuel Carrera, said the decision is a big step in the direction of creating a North American energy bloc. “Once both countries have this experience and see the benefits, it will create a deeper understanding of the merits and people will feel more comfortable with them,” he said. “This is a small step, but it’s also very significant.”
The agreement to approve oil trade with Mexico comes little more than a year after the U.S. allowed companies to begin exporting an ultralight oil called processed condensate to foreign buyers. Since then up to 3.5 million barrels a month of ultralight oil has flowed overseas, mostly to Asia and Europe.
U.S. Sen Lisa Murkowski (R., Alaska), chairwoman of the Senate Energy Committee, led colleagues in a letter to Commerce Secretary Penny Pritzker in February advocating approval of the Mexico oil swap, and two Texas congressmen followed suit in May.
The congressmen, Will Hurd (R., Texas) and Henry Cuellar (D., Texas), in a statement Friday praised the Commerce Department decision. “The American energy renaissance that has flourished in Texas due to Eagle Ford, Permian Basin and Barnett shale exploration will continue to strengthen because of this decision,” Mr. Hurd said.
Some in Congress have argued that allowing American oil to flow out of the country would push up prices and reduce available supplies of fuel.
And Jay Hauck, executive director of Consumers & Refiners United for Domestic Energy, which represents several large fuel-making plants in the U.S., said allowing U.S. oil exports will cause the price of the benchmark West Texas Intermediate crude contract to rise, perhaps putting it on parity with the Brent world oil price. That means U.S. refiners will have to spend more money to buy crude oil, and those higher prices will get passed along to consumers, he said.
“Some of the arguments others are making don’t take into account some of the complicated nuances at work,” he said. “This is an incredibly complex market.”
But many energy economists, as well as the Congressional Budget Office and U.S. Energy Department, contend that exporting U.S. crude will ultimately help lower global oil prices by adding supplies to the world-wide market.
Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries have been pumping surging volumes of crude oil, and Iran may add to the glut if it can export oil by agreeing to an international deal limiting its nuclear program.
Countries from Japan and South Korea to Poland have expressed interest in buying American oil, in part so they don’t have to rely as heavily on big oil-pumping countries such as Iran and Russia, said George Baker, executive director of Producers for American Crude Oil Exports.
“Other countries quite clearly want to get in on the benefits—geopolitical and economic,” he said. “They want in on this American oil renaissance for good reasons.”
26 Comments on "US Loosens Longtime Ban on Oil Exports"
Nony on Sat, 15th Aug 2015 6:43 am
Good start to removing the export ban.
paulo1 on Sat, 15th Aug 2015 8:56 am
re: “The deal illustrates how Washington is trying to catch up to a dramatic new energy abundance in the U.S.”
Hah hah. The deal represents how oil companies will now be able to sell at world price, which will raise the internal US price and increase their profits. Sure, it will keep some patch jobs going, but this is really no more than a consumer tax heading straight to the shareholder’s dividend account.
Boat on Sat, 15th Aug 2015 9:55 am
paulo,
The Houston refineries are set up for heavy crude and eagle ford has sent them to much light sweet to be maximum efficient. Under the guidelines this deal with Mexico is good. We have excess light sweet oil.
Plantagenet on Sat, 15th Aug 2015 11:18 am
Obama wants to cut US domestic oil consumption to reduce US CO2 emissions.
What better way to do it then to allow US oil and gasoline prices to rise to world levels?
rockman on Sat, 15th Aug 2015 11:25 am
There is no US oil export ban. Last April/May the US was exporting oil at the rate of 200 million bbls per year. The US has been exporting oil to Mexico for decades. Granted not much lately but it the late 90’s we exported as much as 200,000 bbls in one month. And we won’t be “selling oil” to Mexico. We’ll be swapping oil with them. And oil swaps have also been done for decades. Such as swapping N Slope oil with Japan.
And if you want to argue with the FACTS I’ve posted have at it. But you have to post links to more credible sources yhen mine…the EIA.
And no: US refineries are not designed to process “heavy oil”. US retineries are designed (and have been for decades) to process a very narrow range of oil gravity: 29 API to 32 API. In order to refine heavy oil, like 20 API, they have to blend it with light oil/condensate that are in the 40 API range.!
And guess what oil the Mexicans want: the light Eagle Ford production. Do I have to explain why? LOL. They want it for the same reason millions of bbls of EFS production has been EXPORTED to another country…Canada’s east coast refineries. And guess why: to blend with heavier oil. Blended oil their refineties are designed to handle.
Now watch all the post that say I’m full of sh*t. But notice they won’t post any crerible links with FACTS.
Boat on Sat, 15th Aug 2015 11:46 am
Rock,
http://www.reuters.com/article/2015/01/07/us-markets-oil-saudi-osp-analysis-idUSKBN0KF10X20150107
Two factors will come into play over the next few weeks: From the North, new oil pipelines will pump record volumes of Canadian crude to the southern refineries, many better equipped to process heavy crudes than lighter shale oil.
“So far, the Gulf Coast has suffered from an oversupply of light oil, but now there’s competition for heavier crude,” said Sandy Fielden at RBN Energy. With the Saudis already facing fierce competition for their light grades, the arrival of Canadian crude “could add insult to injury”, he said.
Large volumes of foreign heavy oil reaching the Gulf Coast will give many U.S. refiners more choice after they have upgraded their systems to process cheaper, heavier crudes. The new supply also marks a breakthrough in Canada’s years-long effort to bring its growing Alberta oil sands crude output to new markets.
Rock, I can find many articles like this which helped form my opinion. Why would they lie about how the refineries were set up?
Boat on Sat, 15th Aug 2015 11:52 am
Rock
Yet another, I could go on and on. BTW as I live in Houston I am using the gulf coast refineries as my models.
http://www.cnbc.com/2014/07/13/us-oil-productoin-refiners-struggle-with-fruits-of-us-shale-boom.html
Boat on Sat, 15th Aug 2015 12:02 pm
Rock,
http://www.eia.gov/dnav/pet/pet_move_wkly_dc_nus-z00_mbblpd_w.htm
There is no US oil export ban. Last April/May the US was exporting oil at the rate of 200 million bbls per year.
200 million barrels per day is a pittance. If the export ban included was dropped to every country in the world then you could say accurately that there was no ban.
jim on Sat, 15th Aug 2015 12:51 pm
has anyone considered that we are breaking russia s back with this. we supply europe with oil .next is lng.they have set up ports expressly to import lng. that is a russian export that putin has used in an attempt to control eu. plus it will help our balance of trade.interesting!
Plantagenet on Sat, 15th Aug 2015 1:32 pm
Rockman is conflating crude oil and refined oil. Its always been legal for the US to export REFINED oil. What happened this week is the Obama administration issued a waiver allowing US firms to export CRUDE oil to Mexico as part of a swap of US light oil for Mexican heavy crude.
Boat on Sat, 15th Aug 2015 1:46 pm
Planet,
Petroleum products is another animal entirely. Allowing only certain countries under strict regulations to trade crude, is not my definition of free oil trade.
While I am at it I disagree with…….What better way to do it then to allow US oil and gasoline prices to rise to world levels?……
I believe this was a controlled small trade deal that will not threaten the US consumer with the global cost of gasoline and oil.
Boat on Sat, 15th Aug 2015 2:01 pm
jim,
Consider this, the US imports net over 5 mbpd.
http://www.eia.gov/dnav/pet/pet_move_wkly_dc_nus-z00_mbblpd_w.htm
look at the bottom of the chart.
Nony on Sat, 15th Aug 2015 2:04 pm
Rock is full of it. Try selling a cargo to Germany rock. 5, 4 3, 2, 1.
rockman on Sat, 15th Aug 2015 4:09 pm
Boat – Are you aware that 25% of the imports from the Canadian oil sands is light oil that’s blended with it so it can be pumped? Are you aware that there’s a pipelined planed to pump light oil from Louisiana to Alberta?
And I hate to be rude but now youwAnt to qualify how much oil has to be exported to qualify “exported oil”? So tell us, oh maker of the rules: how many hundreds of millions (or billions) bbls of oil must be exported before you declare there no US oil export ban? And none of the links you posted conflicts with anything I posted.
And plant, you lazy SOB: either you didn’t take the time to go to the EIA link or you are a liar. The link clearly shows the US has started exporting CRUDE OIL at the rate of 200 million bbls per year. And the same web site will also show the US is exporting about 1 BILLION BBLS OF REFINED PRODUCTS MADE FROM CRUDE OIL.
See folks; just as I predicted: criticism from weak sisters like nony that post NO FACTS to back up their empty claims. As predictable as the sun rising tomorrow morning. Just a waste of space. LOL.
rockman on Sat, 15th Aug 2015 4:50 pm
Germany? Did someone mention the US exporting oil to Germany? Why, as a matter of EIA facts, the US did exactly that in 2014. Along with exports to Italy, Switzerland and Spain. As well as to some non-European countries. Granted not a lot but considering that the US is such a huge NET OIL IMPORTER what f*cking difference does it matter if we exporter a small amount of oil or a sh*t load of it? IOW if the US started exporting 1 BILLION BBLS OF OIL PER YEAR we would have to import all of it back in…along with the oil we’re already importing. IOW this entire discussion about oil exports bans is goofy in the first place: the US hasn’t been a NET OIL EXPORTER FOR DECADES. And will
never be a NET OIL EXPORTER.
Which from a practical point of view it doesn’t matter if a lot of oil were exported by us or not: the US will never be an “oil exporter” like the KSA or any of the other NET OIL EXPORTERS. Every bbl of oil the US exports has to be imported.
Boat on Sat, 15th Aug 2015 4:52 pm
Try googling American export ban and you will see the ban is not something I dreamed up. You are welcome to split hairs. You are Texan after all.
Your response to gulf refineries set up for heavy oil you disagreed with? Did you look at the links you requested.
Plantagenet on Sat, 15th Aug 2015 5:15 pm
@Rockman, you lazy SOB, don’t you know that several years ago Obama waived the law against exporting crude oil to allow Bakken oil to go to Canada? And then after that he gave waivers to Pioneer Exploration and a couple other shale oil companies to export their oil overseas? And just this last week he granted a new set of waivers to the law against exporting crude to permit US crude to go Mexico?
OF COURSE the US is already exporting crude oil—-Obama has been granting waiver after waiver to the law against exporting crude for years now. This new waiver to allow crude oil exports to Mexico is just the latest waiver.
Get it now?
CHEERS!
rockman on Sat, 15th Aug 2015 5:26 pm
Boat – If you want to present yourself as knowing a lot about refining because you live in Houston that’s OK because that should make me a refining expert since I live just across Spur 330 from the second largest refinery in the western hemisphere. LOL.
Here’s a very long discussion of the bending process I mentioned. BTW before the Eagle Ford boom US refiners were importing light oils to blend with the heavies so refineries would get the API they required. Essentially
they’ve been substituting Eagle Ford light for those imports. Dig down deep enough in this link and you find a lot of useful FACTS about oil blending including the excerpt below:
http://blogs.platts.com/2013/06/21/oil-cocktail/
“Several port customers, including Valero and Flint Hills, both of whom have sizable refineries in Corpus Christi, have started to blend Eagle Ford with foreign crude, said Frank Brogan, Managing Director of the Port of Corpus Christi, Texas.”
rockman on Sat, 15th Aug 2015 5:33 pm
.Plant – And you still don’t get it: there is nothing mew about waivers to export US oil Mexico. Such waivers to Mexico have granted for more then 2 decades. You newbies get all excited when you think you’ve discovered something new. LOL
Boat on Sat, 15th Aug 2015 5:45 pm
Rock,
I don’t claim to know a lot about refining but I do read a lot. When you make statements that conflict with an article I just question the difference. We all do that.
I think you miss the point. Many articles and so called exports say the refineries in the gulf are set up for heavy oil and the plethora of light oil has been a problem with the efficiency of the refineries. Some refineries are being considered for retooling to light sweet crude.
You claimed that isn’t true. You think asking that is personal I guess. Don’t know why. I was just interested in your opinion. You asked for links, I gave you links.
Plantagenet on Sat, 15th Aug 2015 5:56 pm
@Rockman
Of course there is nothing new about waivers. That does’t change the fact that there is indeed a law on the books against exporting US crude.
Yes, the law against exporting crude can be circumvented with a wavier, but most US oil production is not covered by the existing waivers so the export of most US oil production is still blocked by the law.
Comprende ahora, mi amigo?
Cheers!
Nony on Sat, 15th Aug 2015 7:34 pm
We didn’t export oil to them, Rock. Refined products are not oil. You’re a joke.
Nony on Sat, 15th Aug 2015 7:44 pm
Eia shows 114 of crude in 2014. Not sure the designation or if it was split product. In any case the law DOES stop you right now from selling a cargo to Germany, Rock. Try it. TRY IT. Just go sell one. See what happens to you.
You blather about no ban in contrast to the entire rest of the industry and have NO EXPLANATION for the several dollar split of Brent and WTI.
You’re a joke, old man. Sitting here with loser peakers listening to you. Acting like you’re some big industry stud when Rockdoc has readily cleaned your clock on basic technical points.
When we go to net NG exports in a couple years I’m going to rub your face in it. Just like the Marcellus annual/monthly fuckup or the Texas RRC lag fuckup. (Not big points in themselves but your failure to man up and face mistakes just shows what a joke you are.)
apneaman on Sat, 15th Aug 2015 8:32 pm
Can Shell afford Arctic oil?
Karl Mathiesen
How much oil would make Shell’s controversial Arctic bid profitable? What would be the impact of a catastrophic oil spill? And can the venture succeed as the world adapts to climate change?
http://www.theguardian.com/environment/2015/aug/12/can-shell-afford-to-drill-for-oil-in-the-arctic
Nony on Sat, 15th Aug 2015 10:21 pm
https://marketrealist.imgix.net/uploads/2014/01/LLS-and-Brent-Crude-Price.png?w=660&fit=max&auto=format
Look at the graph. See how LLS is lower than Brent by several dollars the last few years when traditionally it was same or even slightly higher.
P.s. If there isn’t any export ban and everything trades freely, than I guess you won’t mind us cancelling the export ban.
marmico on Sun, 16th Aug 2015 11:14 am
The link clearly shows the US has started exporting CRUDE OIL at the rate of 200 million bbls per year.
Are you 100% certain that the EIA export data reports ex-Canada are not Canada re-exports via PADD 3?
If not, STFU! U.S produced condensate exports are picking up steam.