Exporting Oil Will Lower Your Gasoline Bill?

Since 1975, U.S. exports of crude oil have been largely banned under restrictions imposed by Congress in the aftermath of the 1973 Arab oil embargo. But with the U.S. entering into what many have termed a new era of oil abundance, U.S. lawmakers are now seriously thinking about lifting the ban.

Some worry that exporting U.S. oil could raise domestic gasoline prices, eating into consumers' disposable incomes and hindering economic growth. But according to a new study, lifting the ban would actually result in lower prices at the pump, in addition to a plethora of other economic benefits. Let's take a closer look.

A view of the Houston Ship Channel, one of the busiest seaports in the U.S. and a crucial waterway for oil shipments. Photo Credit: Flickr/Roy Luck.

The economic benefits of allowing U.S. oil exports
The study, conducted by consultancy ICF International and commissioned by the American Petroleum Institute, found that exports of U.S. crude oil would increase global oil supplies, exerting downward pressure on global oil prices and, therefore, on U.S. gasoline prices, which are more closely linked to global oil prices than they are to domestic ones.

According to the study, allowing crude oil exports would reduce U.S. gasoline prices by 1.4 to 2.3 cents per gallon between 2015 and 2035, measured in 2011 dollars. Cost savings from lower prices for gasoline, heating oil and diesel could fuel $5.8 billion per year in consumer savings over that period, the study estimated.

The study also found that allowing crude oil exports could lead to some $70 billion in additional investment by U.S. exploration and production companies over the period 2015-2020, allowing them to drill about 500 to 1,000 more wells each year than they otherwise would have drilled. As a result, U.S. crude oil and condensate production would rise by an estimated 130,000 to 300,000 barrels per day, ICF said.

Increased domestic drilling activity, in turn, would have widespread positive effects on various sectors of the economy. The increased demand for drilling equipment would support job growth in manufacturing and boost demand for raw materials like steel, supporting an additional 300,000 new jobs by 2020 and boosting U.S. GDP by an annual $38 billion by 2020.

Who wins and who loses if exports are allowed?
While the ICF study and other analyses have concluded that allowing oil exports would have a positive net economic impact, it would also create a group of winners and losers within the energy industry. Specifically, upstream producers, which are involved in exploring for and producing oil, would benefit, while downstream operators, which are involved in refining crude oil into gasoline and other refined products, would suffer.

Upstream companies would benefit because exports would boost prices for domestic crude oil, benchmarked to West Texas Intermediate, allowing them to earn a higher margin on their production. Meanwhile, refiners would suffer because their profits are tied to the price difference between WTI and global crude oil, benchmarked to Brent.

Basically, allowing oil exports would boost the price of WTI by a lot more than it would decrease the price of Brent, resulting in a contraction of the Brent-WTI spread. Therefore, the price of refiners' crude oil feedstocks would rise, while the price at which they sell gasoline and other refined products would fall, leading to a compression of their margins.

As one would expect, most U.S. refiners are vehemently opposed to lifting the crude export ban. Over the past few years, many of them have benefited tremendously from exporting refined products such as gasoline, diesel, and jet fuel. Because U.S. crude oil prices have been substantially lower than global crude prices, they've earned fat margins by exporting ever-growing volumes of these products abroad.

For instance, Valero's (NYSE: VLO  ) gasoline exports surged 33% year over year to to 133,000 barrels per day during the fourth quarter. Phillips 66 (NYSE: PSX  ) similarly grew its refined product exports by 32% to 197,000 barrels per day, while Marathon Petroleum's (NYSE: MPC  ) exports more than doubled to 298,000 barrels per day. All three firms view exports as a key driver of future growth thanks to substantial refining capacity along the Gulf Coast region export hub.

Are crude oil exports in the nation's best interest?
Based on the ICF study and other recent analyses, it appears that the combined benefits of allowing oil exports -- including GDP and job growth, greater domestic oil production, and increased consumer spending due to lower gasoline prices -- would more than outweigh the costs of lower margins for U.S. refiners. While I'm certainly not advocating unfettered crude oil exports, I think a gradual lift of the ban may be in the best interest of the nation at large. What do you think?

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Read/Post Comments (16) | Recommend This Article (2)

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 April 20, 2014, at 12:19 PM, Mark1946 wrote:

    The ONLY thing that will lower our gasoline prices is to REMOVE crude oil from the uncontrolled GREED of wall Street SPECULATION.

  • Report this Comment On April 20, 2014, at 12:31 PM, amvet wrote:

    Since we do not produce enough oil for our needs, this is a meaningless discussion. Go ahead, approve exporting what we do not have to export.

    Meanwhile people in Washington demand that we approve exporting NG to the Ukraine.

    No pipeline, no LNG facility in the eastern US. No way to export to the Ukraine.

  • Report this Comment On April 20, 2014, at 12:40 PM, Freddyfreebe1 wrote:

    Oil is a scam and if the Atlantic Ocean was a ocean of oil, you will still pay dearly at the pump. Oil turned into big money which turned into greed. Remember when everyone switch to cable tv because there was suppose to be little to no ads. Oil has become to stick the world..Hell a trillion dollar war in Iraq was just to support big oil off our backs. Remember when Goldman Sachs got into the picture with big oil. Remember the question asked, How Much a Barrel do you need for a profit . At that time it was 40 bucks a barrel. After that everything to do with oil became the biggest 21st century scam. Oil needs to not be apart of our future.

  • Report this Comment On April 20, 2014, at 12:52 PM, fuzzface52 wrote:

    So let me get this straight you want to lift the Export ban on oil but there is no Export ban on selling refined oil products. So what is the difference our oil and our finished products are still leaving the country at a rate of 628,000 barrels a day. This article is nothing more than another scam by Wall Street to win over popular opinion to sell OUR oil (found in our country). Lifting this Export Ban on oil means we would sell oil and finished products overseas so the amount leaving the country would be in the millions of barrels a day instead of the 100,000"s. How could that possible lower any of our fuel prices? It will not and that is why this is the NEW HUGE SCAM in oil! Call your congress man or woman and tell them to vote NO on LIFTING THE EXPORT BAN ON OIL!

  • Report this Comment On April 20, 2014, at 1:22 PM, WestBob wrote:

    What do you expect? API got what they paid for.

  • Report this Comment On April 20, 2014, at 1:27 PM, quasimodo007 wrote:

    Never the evil New Americans GoP /Dem congress Greedy Mafia Privilege Crooks of wall street will always Increased the Inflate prices of Gas /Oil while the evil GoP congress gives these Privilege Mafia crooks of OIL get billions dollars TAX break .

    What is sadder is that Most big USA MAFIA GoP congress corporations Privilege crooks of Wall street have Trillions of dollars of NON taxable Cash Reserve in OFF SHORE Accounts. And the Evil NsA spies and Hack the world for these evil GoP congress mafia Privilege CROOKS of wall street for Economic Gains

  • Report this Comment On April 20, 2014, at 1:45 PM, Flovent wrote:

    This article contradicts itself. First it states that exporting crude would decrease the price of oil by creating a worldwide glut. Later it states that it would increase the price of oil benefiting upstream producers. I recommend folks do their own research and use their own common sense when investing and always think critically when reading analysts opinions.

  • Report this Comment On April 20, 2014, at 1:52 PM, bobthegoodone wrote:

    Exporting Oil Will Lower Your Gasoline Bill? Sure it will and the Easter Bunny is real ! The only thing that will happen in the same thing this pipeline will cause prices will go up !

  • Report this Comment On April 20, 2014, at 2:00 PM, speculawyer wrote:

    The American PETROLEUM Institute says exporting crude will give you cheaper gasoline!

    And you believe it? Did your mother drop you on your head as a baby?

  • Report this Comment On April 20, 2014, at 2:03 PM, rrats0966 wrote:

    Of course this assumes that other countries will continue to pump out the same amount of oil they are doing now.

    What happens when there is a hurricane, a war in an oil producing area? This is nothing but a money grab by our politicians in Washington looking to increase revenues so they can can continue to spend money on pork projects.

    It's a national resouce, not a international one.

  • Report this Comment On April 21, 2014, at 10:37 AM, Dave123456789 wrote:

    Oh, well if the American Petroleum Institute said it, it must be true. They'd never lie about something like that.

  • Report this Comment On April 21, 2014, at 11:40 AM, foolsfollower wrote:

    Look at the price spike in propoane this year. Huge export volumes were a major cause, as pipelines were committed to supplying customers outside the US.

  • Report this Comment On April 21, 2014, at 12:22 PM, buzzltyr wrote:

    They can't export oil but they can export gasoline, so we have had a 300% increase in the last 5 years.

    At least lets come clean, the keystone pipeline is not for americans and will not lower gasoline prices, the keystone oil is to get oil to Houston to refine it and ship it to Europe.

    The reason gasoline prices have gone up is because they reversed a pipe from cushing to Houston and sold off the cushing backlog of oil for refiners to sell to Europe and south America.

  • Report this Comment On April 21, 2014, at 12:31 PM, marker585 wrote:

    I understand what's being said in the article although I'm not sure American drivers will really benefit. Oil is traded on various commodity exchanges as is ethanol and unleaded gasoline. While crude is the basic ingredient in gasoline and comprises 70% of its overall cost the fact that unleaded gasoline and ethanol are traded separately thus are subject to other market influences such as producer stocks, the time of year, blending requirements, etc. Plus take a refinery out of service and gasoline prices go up although it typically only applies to the particular area services by that refinery.

  • Report this Comment On April 21, 2014, at 2:16 PM, NoMoolah2 wrote:

    "According to the study, allowing crude oil exports would reduce U.S. gasoline prices by 1.4 to 2.3 cents per gallon between 2015 and 2035, measured in 2011 dollars."

    Using an average of 1.85, its a savings of .37¢ for a 20 gallon tank. If I fill-up every week its a huge savings of $19.24 per year. Big whoop.

  • Report this Comment On April 21, 2014, at 6:25 PM, zommo wrote:

    yes and I won't c u m in your mouth and i'll only put the head in. does. anyone really believe this oil company propaganda BS and shipping all the manufacturing jobs that were in the US was good for the country's middle and lower middle classes also. WAKE UP PEOPLE

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Arjun Sreekumar

Arjun is a value-oriented investor focusing primarily on the oil and gas sector, with an emphasis on E&Ps and integrated majors. He also occasionally writes about the US housing market and China’s economy.

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