This New Ruling on U.S. Oil Exports Could Have a Massive Impact on Your Portfolio

Why federal regulators’ decision to allow exports of minimally processed condensates could have a major impact on U.S. oil producers and refiners, along with other energy industry participants.

Jun 25, 2014 at 9:15AM

The Wall Street Journal reported on Tuesday that the Obama administration has cleared the path for U.S. energy companies to export condensate, an ultralight form of crude oil, in what may be the most significant revision to the nearly 40-year ban on U.S. crude oil exports. Let's take a closer look at the new ruling and how it will impact U.S. oil and gas producers and refiners, along with other energy industry players.


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.

A first step toward crude exports
Federal officials told two energy companies -- Irving, Texas-based exploration and production specialist Pioneer Natural Resources (NYSE:PXD) and Houston-based midstream operator Enterprise Products Partners (NYSE:EPD) -- that they can export condensate to foreign markets after minimally processing it in a refining unit known as a distillation tower.

The U.S. Commerce Department's Bureau of Industry and Security granted the permission through a process known as a private ruling. However, the rule applies only to condensates that are run through a distillation tower and not to unprocessed condensates that flow directly from oil and gas wells. Processing condensate through a distillation tower creates "a petroleum product (that) is no longer defined as crude oil," Commerce spokesman Jim Hock told Reuters.

Shipments of condensate could commence as early as August, the Journal reported, citing an industry executive with knowledge of the matter. Under rules imposed in the aftermath of the 1973 Arab oil embargo, U.S. companies are banned from exporting crude oil abroad, with a few limited exceptions, mainly for shipments to Canada. They can, however, export refined products such as gasoline and diesel.

Effect on oil prices
As the markets eagerly await further details, investors will surely want to know how the decision could affect their portfolios. While the true impact will obviously depend on the volume of condensate exports, Tuesday's announcement is generally bullish for West Texas Intermediate, or WTI, the main U.S. crude oil benchmark, and bearish for Brent, the global crude benchmark.

Indeed, WTI futures for August settlement rose by as much as 1.4% in late trading on Tuesday, while Brent for August delivery slipped 0.4% on the ICE Futures Europe exchange. The logic is that exports will increase the demand for domestic crude oil and condensates, lifting the price of WTI, while at the same time boosting global crude supplies and exerting downward pressure on the price of Brent.

Impact on oil producers, refiners, and others
If additional details emerge suggesting that condensate export volumes will be significant, WTI could rise further, lifting the share prices of WTI-levered companies. Brent, meanwhile, would theoretically fall, though the threat of a supply disruption in Iraq, OPEC's second-largest oil producer, continues to support its price.

If the Iraq conflict were resolved peaceably, however, with no impact on that nation's oil production and exports, Brent would likely fall back down to roughly $110 a barrel. This would lead to a compression of the Brent-WTI spread, the chief determinant of U.S. refiners' profits, and weigh on refining stocks such as Valero (NYSE:VLO), Marathon Petroleum, and HollyFrontier.


A crude oil refinery in Anacortes, Wash. Photo Credit: Wikimedia Commons.

Not surprisingly, Valero, the nation's largest independent refiner, is leading the charge against lifting the crude oil export ban. Not only would large-scale crude and condensate exports reduce the company's margins and earnings, but they could also put at risk its planned investments in topping units -- refining units designed to boost light oil processing capacity -- at its Houston and Corpus Christi refineries.

Lastly, large-scale condensate exports could also make redundant a type of mini-refinery known as a condensate splitter, which processes condensate just enough to create readily exportable products. Companies planning to build -- or currently building -- these splitters include Kinder Morgan Energy Partners (NYSE:KMP), Targa Resources Partners, and Magellan Midstream Partners.

Luckily, all three companies have already inked firm long-term supply contracts with their respective customers, which should ensure their projects come to fruition. For instance, Kinder Morgan's $360 million splitter -- being constructed near the Houston Ship Channel and expected to start up this fall -- is supported by a long-term, fee-based agreement with BP (NYSE:BP). Still, large-scale condensate exports could seriously challenge the economics of new condensate splitters or capacity expansions at planned plants.

The takeaway
The Obama administration's decision to allow exports of minimally processed condensates is a crucial first step in updating the 40-year ban on crude exports to reflect the nation's newfound bounty of oil. While additional details regarding federal regulators' plans need to surface before one can draw firm conclusions, the move is generally bullish for U,S, oil producers and generally bearish for the nation's refiners.

OPEC is absolutely terrified of this game-changer

As the debate over US crude oil exports highlights, America's domestic energy landscape is changing radically. US 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.


Arjun Sreekumar has no position in any stocks mentioned. The Motley Fool recommends Enterprise Products Partners. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers