Here's Why Ending the U.S. Crude Oil Export Ban Matters for You

U.S. exports of crude oil have been banned since 1975 as part of a law enforced by Congress in the aftermath of the 1973 OPEC oil embargo to guard domestic reserves and protect U.S. energy security.

But with U.S. crude oil production having surged by nearly 60% since 2008, thanks largely to the application of advanced drilling techniques that have unlocked a bounty of oil trapped in shale formations deep below the ground, the movement to end the nearly 40-year ban is growing ever louder.

According to recent comments by Energy Secretary Ernest Moniz and White House advisor John Podesta, the Obama administration is now seriously considering relaxing federal laws prohibiting exports. If the ban is lifted, here's what it could mean for the U.S. economy and the average American consumer.

The Houston Ship Channel, one of the busiest US seaports and a key waterway for oil shipments. Photo credit: Flickr/Roy Luck.

Broad-based economics gains
According to a recently released analysis by IHS, a leading consultancy, lifting the ban would lead to broad-based economic gains by boosting U.S. oil production, reducing our petroleum imports, lowering domestic gasoline prices, and supporting nearly 1 million additional jobs.

The study, titled U.S. Crude Oil Export Decision: Assessing the Impact of the Export Ban and Free Trade on the U.S. Economy, found that ending the ban would give energy companies incentive to boost spending by nearly $750 billion from 2016 to 2030, which would result in U.S. oil production growth of an average of 1.2 million barrels per day more than if export restrictions were left intact.

This increased investment would support an additional 359,000 jobs in 2016, as many as 964,000 additional jobs in 2018, and an annual average of 222,000 more jobs from 2020-2030. As a result of increased spending and job growth, U.S. GDP would rise by more than $70 billion in 2016, by more than $130 billion in 2018, and by an annual average of $73 billion from 2020 to 2030.

This would make the nation much less reliant on foreign oil and lower net petroleum imports by nearly 1 million barrels per day in 2016, resulting in savings of more than $43 billion, and by nearly 2 million barrels per day in 2020, saving the U.S. nearly $87 billion. And total government revenues would increase by a combined $1.3 trillion over the period 2016-2030, the study projected.

Modest positive impact on U.S. consumer
Lifting the ban would also be good for the U.S. consumer through another valve -- modestly lower gasoline prices. This is because exports would increase global crude supplies, thereby reducing the price of the global crude oil benchmark, Brent, all else being equal. Since U.S. gasoline prices are more closely correlated to the price of Brent than to U.S. crude oil benchmark prices, the cost of gas at the pump would fall by 8 cents per gallon through 2030, the study found.

A Shell gasoline station in California. Photo credit: Wikimedia Commons.

While that might not sound like much, the combined impact of lower gas prices, increased investment, and job growth would boost average disposal income per household by an additional $391 in 2018, the study estimates. That's nearly 400 more dollars that U.S. households can spend on other goods and services.

All opposed, please stand
But while the overall economy would likely benefit from allowing crude exports, there's one major group that would suffer -- U.S. refiners. These companies, which refine crude oil into petroleum products such as gasoline and diesel, have benefited tremendously from the shale boom that has driven down U.S. crude oil benchmark prices over the past few years.

Refiners' profits are largely determined by the price difference between domestic crude oil benchmarks like West Texas Intermediate, Louisiana Light Sweet, and Brent. The larger the price gap between these benchmarks, the higher their margins. But allowing exports would likely boost domestic benchmark prices while lowering the price of Brent, thereby compressing U.S. refiners' margins.

Large refiners including Valero (NYSE: VLO  ) and Phillips 66 (NYSE: PSX  ) are among those that would be affected. For instance, weaker refining margins were a key contributor to the decline in Phillips 66's refining earnings, which fell from $904 million in the first quarter of 2013 to $306 million during the first quarter of this year. Valero similarly credited lower throughput refining margins as one of the main reasons behind the year-over-year decrease in its refining operating income in the fourth quarter of last year.  

Yes or no to oil exports?
Overall, the IHS study -- and several other studies like it -- suggests that lifting the 40-year ban on crude exports would be a net positive for the U.S. economy. Benefits including higher domestic oil production, reduced petroleum imports, job growth, lower domestic gasoline prices, and higher government revenues should easily offset the negative impact on U.S. refiners. Personally, I think a piecemeal lifting of the export ban would probably be in the nation's best interest. What do you think? Could there be any unforeseen negative consequences?

OPEC is absolutely terrified of this game-changer
As the debate over U.S. crude oil exports highlights, America's domestic energy landscape is changing radically. U.S. oil production continues to surge as our country moves closer to energy independence. And there is one company front and center that is poised to make its investors rich. Warren Buffett has already committed to it, and you can too. Click here to learn about this company in the Motley Fool's special report: OPEC's Worst Nightmare.


Read/Post Comments (18) | Recommend This Article (5)

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 June 01, 2014, at 7:56 PM, quasimodo007 wrote:

    NOT really the evil GOp congress GREEDY MAFIA Privilege CROOKS of wall street Oil/GAs Get Huge Billions dollars TAX breaks .

    they Shut down Refineries to Increase the Inflated pump Prices .

    THEY DO the GREAT Americans RIP OFF on consumers at the Gas Pumps.

  • Report this Comment On June 01, 2014, at 8:12 PM, rangerbob42 wrote:

    I have one negative comment. Let's say, what happens when our production fields go back in decline? Our national defense will be back to ground zero. Pay more for imports. What will we have to say to our grandchildren? Your Nation is weak again because, "We sold it to the World". Again history is repeated.

  • Report this Comment On June 01, 2014, at 8:14 PM, pristine2 wrote:

    A profoundly misleading article, one that just coincidentally dovetails perfectly with the oil industry lobbying material now saturating US business publications.

    First and foremost, lifting the export ban will result in a huge and permanent lift in oil prices. The "Brent benchmark" rational offered here is pure sophistry.

    Moreover, the overwhelming majority of crude exports will go to China, not Europe, erasing the only advantage US manufacturing has had in decades.

    Lifting the ban is against the sovereign interest, which, believe it or not, is not identical to the corporate interest of large energy producers.

  • Report this Comment On June 01, 2014, at 8:22 PM, gbuck wrote:

    Economics 101 the law of supply and demand.

    When supply exceeds demand the price goes down. The market is being controlled by hedge funds and big money. They do not care that the oil really will be gone in less than 25 years if we export all of our oil. They will leave us behind and live high on the hog in some foreign country. If you believe the spin doctors then you believe the wars were justified.

  • Report this Comment On June 01, 2014, at 9:24 PM, mrwinkydude wrote:

    Ok, so no, no it will do nothing at all for the price of gas at the pump here in america. The only thing that could help that is getting rid of speculators in the market. Sending our oil out into the world markets will only make this country weaker and other counties stronger. We already know the price of gas is artificially high and it's going to stay that way. We need our own oil refines and sold here in america while we work our way off oil altogether. You can see this but big oil is greedy and car manufacturers want to hold onto the combustion engines. This we know because all the concept cars of the future still have gas powered motors. You see the change has to start in the mind of the engineers who build this stuff and then find its way out onto paper and then development leads to manufacturing. How can that happen if the minds are still thing combustion engines for the future? NO, no exports slap a 60 percent tax on the speculators and traders of oil until they can see to bring the prices back down. The economy will fix itself when you and i are nolonger being jacked at the pump!

  • Report this Comment On June 01, 2014, at 10:27 PM, cheryl wrote:

    No--don't want to export oil---when our government wants to devalue the US dollar to fuel government debt---we would be giving that oil away for less than it cost people in this country to buy. Think the government should built more refineries in this country.

  • Report this Comment On June 01, 2014, at 10:43 PM, bmazdapu wrote:

    well all I can say about this is FU*K big oil AND NO EXPORTS and fu*k wall street

  • Report this Comment On June 01, 2014, at 11:27 PM, Richmond wrote:

    The big lie about domestic oil production was this was the very goal in the first place. US oil companies are not in the business of making gas inexpensive for consumers. This whole domestic shale gas and oil production was always about oil companies wanted to sell the oil on the world market at those prices. It was never about make gas cheap for Americans.

  • Report this Comment On June 02, 2014, at 12:11 AM, zblackdog wrote:

    AGREE WITH ALL OF THE ABOVE! And my Valero, Marathon Petroleum, and Hess stocks are doing very nicely right now.

  • Report this Comment On June 02, 2014, at 12:37 AM, stockingshorts wrote:

    ....."the cost of gas at the pump would fall by 8 cents per gallon through 2030, the study found....."

    WOW.....HOLY CRAP!....eight whole friggin CENTS a gallon by 2030!!!!....Well I could almost urinate down my pant leg with that fantastic news.....I don't know what to say except....."Gee!....thanks you big hearted oil companies you!"

    Isn't that amazing?.....I'm absolutely flabbergasted!....

    EIGHT WHOLE CENTS in 16 years!!!WOW....but, but could someone please explain to me just HOW shipping OUR oil off shore will increase supply (when we know those numbers can be played with) and therefore force prices down????

    YEAH, That's what I thought................................

  • Report this Comment On June 02, 2014, at 4:16 AM, pristine2 wrote:

    This is barely warmed-over propaganda produced by the PR machinery of the oil industry, presented as fact. The author, Arjun Sreekumar, should be asked directly: is it really worth compromising your integrity in this way? Did it not occur to you to at least question the material before regurgitating it?

  • Report this Comment On June 02, 2014, at 5:33 AM, douglasscott2005 wrote:

    I have never seen so many negative comments so rapidly attached to a Motley Fool article before. How the heck did that happen?

  • Report this Comment On June 02, 2014, at 6:51 AM, jacked420 wrote:

    go back to gold and silver standard and stop borrowing money from the federal reserve bank this would bring the value back to the dollar and lower prices

  • Report this Comment On June 02, 2014, at 9:25 AM, buckl1 wrote:

    Something these articles never consider is end consumers we export to do not buy crude oil. They buy finished products namely gasoline and diesel. The current ban on Exports has fostered a huge surge in plant construction here in the U.S. and will provide further employment in the refining industry. This provides just as much economic benefit as increased production would earn. Why would we ever want to export our resources like a third world country when we have the capacity here to make finished products and earn that additional margin. If Crude oil is allowed to be exported refineries will return to the same situation they were in just prior to the fracking boom idling plants and eventually shutting them down.

    A second issue is not allowing exports brings moderation to the production companies. They're still making money, if not the current fracking boom would fizzle. If exports are allowed the market will boom even greater and of course will end sooner and with a harder crash.

    The Oil industry is a commodities game. I don't see any significant change to the consumer either way. Petroleum products bring what the market will bear on a global scale. Currently a supply disruption is creating an increased spread for refineries. As in any market differential it will soon find a solution and markets will equalize. Selling our natural resources and giving away the refining margin to other countries is not in our countries best interest. It's not going to help the consumers, will put us in another boom bust production cycle and will idle and eventually shut our refining capacity.

  • Report this Comment On June 02, 2014, at 10:20 AM, bobthegoodone wrote:

    The Energy Information Administration reported that the U.S. oil industry exported 246,000 barrels per day in March 2014

    Read more: http://dailycaller.com/2014/05/30/us-crude-oil-exports-hit-a...

    Now add in the 529,000 barrels of gas shipped out of this country each and every day ! Now you know why gas prices are high , because they want them high !

  • Report this Comment On June 02, 2014, at 10:21 AM, kennyhobo wrote:

    By shutting down coal power plants, Obama will destroy the US economy. I don't think that oil exports can balance the irrational destruction of US electricity production and reliability. Something needs to be done about Obama's incompetence and corruption. Democrats will be in big trouble in the mid-term elections and Obama could be impeached by the next Congress.

  • Report this Comment On June 02, 2014, at 5:27 PM, Heckler wrote:

    US Gasoline consumption is down 75% since 1998 - due to the ongoing economic depression. Oil companies have to sell the oil somewhere else - or shut down the fields. You can' just stop pumping without ruining the well.

    here's the data :

    http://www.nairaland.com/1762560/americas-gas-consumption-do...

  • Report this Comment On June 03, 2014, at 3:10 AM, amvet wrote:

    The debate about exporting oil is mostly political. We have little to export but exports are ok to relieve regional oversupply due to a mismatch of oil type to refinery capability. To see how little shale oil system operates, see the EIA data below.

    http://www.eia.gov/petroleum/drilling/pdf/dpr-full.pdf

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