Could the U.S. Export Crude Oil? It's Time to Rethink the Unthinkable

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The four-decade ban on domestic crude exports was originally codified because the U.S. wanted greater energy security during the 1973 Arab oil embargo. The ban was unquestioned until recently, when lawmakers started to consider the unthinkable: that the U.S. may repeal the export ban on crude oil. 

The U.S. is considering repealing the ban because the original reason, energy dependence on unfriendly or unstable foreign oil, is no longer a big worry.

Because of the shale revolution, the U.S. is on track to overcome Saudi Arabia and Russia as the world's largest producer of oil and gas combined.  

According to economist Ed Yardeni, the U.S. petroleum deficit may even go to zero in the next couple of years. Because of America's newfound energy resources, Energy Secretary Ernest Moniz recently suggested that the Obama administration may reconsider the four-decade ban. 

While the Energy Department does not have the authority to relax restrictions, Mr. Moniz's comments is likely a trial balloon and a sign of possible change in policy.

The winners
Large oil companies such as ExxonMobil (NYSE: XOM  ) ConocoPhillips  (NYSE: COP  ) , and Continental Resources (NYSE: CLR  )  see no reason for the ban and would win if the law were repealed.

Those companies argue that most U.S. refineries can't easily refine the high-quality crude currently produced in the Bakken and other shale plays. When they were built decades ago, those refineries were designed for lower-quality crude from Venezuela, Mexico, and the Middle East.

The solution, according to the oil companies, is for the U.S. to allow companies to export crude oil to other nations that can handle the higher quality. By allowing for export, the price of Brent crude, which plays a large part in setting the price at the gas pump, may go lower, and American consumers would save money on gasoline.

Not coincidentally, the producers would realize more profits because they would realize a higher price for their crude oil.

The losers
If the ban were repealed, it would be bad news for pure-play refiners such as Marathon Petroleum (NYSE: MPC  )  and Valero Energy (NYSE: VLO  ) . Crude oil refiners benefit from a wider WTI-Brent spread. Any narrowing of the spread would narrow their profit margins. They would also see lower revenues because they would be refining less crude oil. 

The bottom line
It is unclear whether repealing the law would actually change the price of Brent or gas at the pump in the near term. The Brent oil market dwarfs any amount that the U.S. can export in the near future.

I think the companies opposed to the repeal do so because they are concerned that this may be the beginning of a disturbing trend. They may not see any impact on the bottom lines now, but they will be affected down the road as U.S. exports grow.

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Read/Post Comments (11) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 18, 2014, at 1:20 PM, rrl1124 wrote:

    no doubt we will see crude oil exports and if Obama can do it there will be an 'export tax' to help him fund obamacare.

  • Report this Comment On January 19, 2014, at 8:09 AM, Rob61a wrote:

    If we started to export this oil and natural gas that we have we could get out of this mess this and past administrations put us in. Then all we would need to do is REMOVE all 535 + 2 and start over with people that will spend only what we can and save for rainy days like we the people have to.

  • Report this Comment On January 19, 2014, at 12:14 PM, JarheadSniper wrote:

    If the U.S.A. can become an exporter of crude oil, then the pump prices of gasoline and diesel fuel should be able to drop back below $1.50/gallon, and stay there. The big oil companies do not need to be raking in almost three fourths of a TRILLION dollars in "NET PROFIT" each and every year, as they have been doing since at least 2002!

  • Report this Comment On January 19, 2014, at 3:12 PM, rschiwal wrote:

    Exporting oil is importing money. The people who produce the product are very well paid, plus we can sell something fairly to China. I fail to see the problem here.

  • Report this Comment On January 19, 2014, at 4:21 PM, True411 wrote:

    This article has all the hallmarks of a phony analysis / phony journalism. The "U.S." is considering? What? The U.S. isn't an entity that can consider, it must be that some politicians are considering lifting the ban. If so, WHO are these politicians? Did the author interview them? If so, where are the quotes? Did the author interview any stakeholders? NOPE.

    Also, shale oil is not "high quality" it requires pre-treating before refining. This problem can easily be solved as it can be blended in with other higher quality crude oil before refining.

  • Report this Comment On January 19, 2014, at 5:20 PM, rossbro wrote:

    The reasons given by Big Oil are almost funny. The refineries can't refine high grade crude??? Bullcrap ! NO EXPORTS !!!! Every American who drove in '74 will tell you that we MUST be secure in our own supplies.

    Make ALL big trucks burn Nat. gas, then we will not need Saudi oil no mo. Screw the people who dropped the Twin Towers, and attack us at every opportunity.


  • Report this Comment On January 19, 2014, at 7:34 PM, newpaint01 wrote:

    do you relly think that this will reduce any thing lol only thing this will do is make oil companies rich and greedier

  • Report this Comment On January 19, 2014, at 10:43 PM, pilgrim007 wrote:

    Hmmm now lets see, If we have enough oil to export and charge an export and sales tax it should be used to pay down the deficit. However if we export oil, the price we pay at the pump will rise claiming it is in short supply. The only ones who will benefit this move is the Oil Companies...........

    Oh yer Rob61, When will you stop blaming the Bush Administration for Oblundabus..............

  • Report this Comment On January 19, 2014, at 11:25 PM, luckyagain wrote:

    Of course the US should export oil, that way the oil companies can raise the price of gasoline. Otherwise the price of gasoline might go down. The poor suffering oil companies can hardly make any money, so let Americans pay more and more. Or else the CEO will have to park their jets and fly on regular planes like regular people do.

  • Report this Comment On January 19, 2014, at 11:42 PM, ferdiefor wrote:

    What a bunch of children. BTW are you writing these immature postings while drinking your Starbucks or designer water. How much does that cost per gallon?

    Grow up. You have no idea about facts like Starbucks profitability versus oil companies and what it takes to bring up oil and refine/deliver gasoline versus your coffee drink or your designer water.

    You are as Obama hopes you would be which is competing with a box of rocks in terms of intelligence.

  • Report this Comment On January 20, 2014, at 12:38 AM, speculawyer wrote:

    This is just a stupid argument to even have. We still important nearly half the oil we use. When we actually come close to not importing oil then maybe it makes sense to talk about exporting. But it is a pointless argument right now. We might as well talk about exporting unicorns and fairy dust . . . we don't have them but hey, lets talk about it anyway!

    (I'm ignoring small export swaps due to geography that are currently legal as long as you get a waiver.)

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Jay Yao

Jay is an energy and materials writer. He reports on oil and gas fundamentals and macro trends in the industry.

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