U.S. benchmark oil prices got a jolt upward Tuesday morning after Energy Secretary Ernest Moniz, speaking at a conference, said the issue of allowing exports of crude was "under consideration." This, it seems, matters more than another set of weak economic data from China or news that Libyan oil output could double after protests there ended.
Allowing more exports of U.S. crude oil, effectively banned since 1975, would raise the price of grades like West Texas Intermediate toward that of foreign benchmarks such as Brent. Rising U.S. output of light, sweet oil is running into the constraint of domestic refineries built to use a lot of imported heavy, sourer oil. The result is a landlocked glut of crude oil, capping prices and potentially discouraging some future drilling.
But anyone expecting export policy to change soon should remember that this is an election year. The first thought of many voters, especially those recalling gas-station lines in the 1970s, is that exporting U.S. oil will raise pump prices. It probably wouldn't, given that products such as gasoline are influenced more by global prices. Allowing exports could actually help to curb prices over time by encouraging more U.S. drilling and supply.
Try explaining that in a sound bite, though. Given that, plus the fact that oil exports figure large in the opposition to the Keystone XL pipeline, and there is little incentive for the White House to weigh in now. The same goes for many members of Congress.
Moreover, the issue of oil exports divides the industry itself. Refiners, who can freely export refined products, benefit from the ban holding down the cost of their main input, crude oil. This, too, muddies the political waters. As Kevin Book at ClearView Energy Partners points out, Sen. Mary Landrieu heads her chamber's energy committee and has long supported natural-gas exports. However, her state, Louisiana, also hosts nearly one-fifth of U.S. refining capacity. Facing a hard re-election battle, she may be reluctant to advance the oil-export cause too much.
