US entering oil export market may faze supply

Signals from Washington are getting clear. A new variable – the US crude – may soon be entering and indeed impacting the global crude markets. The US government is reportedly considering doing away with a four-decade-old law that bans the sale and export of American oil abroad. The ban was put in place in reaction to the Arab Oil Embargo of 1973.

Today the US is producing 10 percent of global crude oil supply, but exports precisely zero barrels because of the ban. Things have definitely changed. Net oil imports have already fallen to about 5 million barrels a day from a peak of almost 13 million barrels in 2006. Some say, the US may altogether stop importing oil by 2037 as abundant domestic crude supplies, including North Dakota’s Bakken field and Texas’ Eagle Ford formation, may push production to the level of consumption, according to the US government. The US Energy Information Administration (EIA) says that within 23 years the world’s largest economy may become energy independent, while demand for crude is expected to be modest.

“This is the first time the Annual Energy Outlook has projected that net imports’ share of liquid fuels consumption could reach zero,” Bloomberg quotes John Krohn, a spokesman for the EIA.

The Paris-based International Energy Agency too predicts the US will become the world’s largest oil producer by 2020, and could be energy-independent by 2037.

The change in scenario is forcing Washington to waver somewhat on its stance on the issue. After staying on the sidelines for some time now, the Obama administration seems finally warning up to the idea of permitting American oil abroad,. The administration is seriously considering changing federal laws to let oil flow abroad, the US Energy Department Secretary Ernest Moniz said in Seoul last week.

“The issue of crude oil exports is under consideration…a driver for this consideration is that the nature of the oil we’re producing may not be well matched to our current refinery capacity.” Moniz said at the end of an energy conference in Seoul, as reported by the Wall Street Journal.

The statements, paired with similar comments by senior Obama counselor John Podesta, mark a notable policy shift inside the administration over the past six months.

“We’re taking an active look at what the production looks like, particularly in the Eagle Ford in Texas, and whether the current refinery capacity in the US can absorb the capacity increase to refine the product that’s being produced,” Podesta told a crowd at the Columbia University’s Center on Global Energy Policy a week earlier.

The current scenario is a lot different from the position the administration had taken until a few months back.

Obama administration has so far been reticent on the issue of the export ban. The Department of Commerce, which administers export licenses for crude oil, has given no indication of any policy changes. At an energy conference in December sponsored by Platts, Moniz responded only broadly to a question about relaxing or lifting the oil-export ban: “There are a lot of issues in the energy space that deserve some new analysis and examination in the context of what is now an energy world that is no longer like the 1970s.”

The idea of exporting crude has long been contentious in Washington, largely based on the perception that exporting oil would cause domestic gasoline prices to soar. Many Democrats in Congress oppose the idea, as lawmakers believe newfound oil wealth should be kept inside the US to keep domestic energy prices low.

Some US lawmakers have not been enthusiastic about oil exports, underlining what it could do to domestic energy prices. “Strife in Ukraine and the Middle East show the continued importance of reducing our reliance on unstable regions for oil,” WSJ quoted Sen. Edward Markey as saying.

Similar worry has in recent years also clouded the debate over natural-gas exports too. The recent boom in American gas markets have resulted in the return of petrochemical and chemical industries back in the country in big numbers. The US chemical industry is once again competitive and in the aftermath of the availability of cheap gas, world players, including SABIC, are now looking into the US markets for putting up production units into the industry. The talks of exporting America’s now plentiful gas is putting them at unease. This could jack up domestic prices, they feel and hence oppose the very idea.

Proponents of the idea seems ecstatic. “The comments from Podesta and Moniz are encouraging,” said Robert Dillon, spokesman for Sen. Lisa Murkowski (R., Alaska), who has loudly called for lifting the oil-export ban. “It’s an acknowledgment that they have recognized the potential and are evaluating it. That’s certainly a big improvement and moves the needle from what we saw six months ago,” WSJ reported.

And as soon as the possibility of US lifting oil export ban became apparent, oil markets reacted. Immediately after Secretary Moniz’s statement of the possibility, oil prices rose last Tuesday. The New York benchmark West Texas Intermediate for June delivery rose $1.11 to $101.70 a barrel. In London Brent oil for June delivery advanced 83 cents to $109.24 a barrel in London.

And there were reasons for this euphoria. “That’s the first time that somebody at that level … has said anything in regards to it specifically,” said Carl Larry, analyst at Oil Outlooks and Opinion told news agencies.” We’ve never been at this point before in our history.”

What is pushing Washington to open its taps to the world? That remains a big if. Though it is interesting to note that the policy shift comes on the heels of the crisis in Ukraine, as the US may be taking advantage of an opportunity to disrupt Russian oil exports to Europe.

Already the US Energy Information Administration predicts that the spot price of Brent crude oil will decline throughout 2014, dropping from the current barrel price of $108/109 to $103 by the fourth quarter.

And what if that is coupled with opening of the SPR taps and that of other OPEC countries and the return of Iran into the crude markets? Is it a far-fetched idea. Who knows?

Everything is indeed fair in – love and war!

Yahoo