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New Report: Renewed Oil Export Ban Not A Panacea For Gasoline Price Crisis

By News Creatives Authors , in Business , at November 17, 2021

As the Biden administration has publicly flailed about in a search for ways to be seen as doing something to address higher gasoline prices, there have been rising calls by congressional Democrats to re-implement the ban on crude oil exports. That counterproductive 1970s-era federal policy was repealed in a bill signed by former President Barack Obama in December 2015, so such calls are a bit ironic coming from Democrats today.

That repeal came as a market imbalance had developed between rising production of light, sweet crude being produced in the major U.S. shale plays and the capacity to process that grade of crude by domestic oil refiners. A high percentage of U.S. refineries were designed to mainly handle heavier grades of crude imported from other oil producing countries around the world; retrofitting them to handle the lighter grades of crude would involve billions in new investment dollars and take years. The growing imbalance could have left U.S. shale producers with no refining home to accommodate future growth.

The lifting of the ban on exports resolved that looming crisis and enabled the massive boom in the shale plays of the Permian Basin to fully develop. It also led to enormous economic development in Texas involving billions of dollars in investments in new pipeline capacity and port development, turning the Port of Corpus Christi into one of the world’s leading facilities for crude exports.

But the willingness of this administration and congressional Democrats to force government intervention into private markets doesn’t make doing so good public policy. Where proposals to re-implement the ban on crude exports is concerned, IHS Markit issued a new report on Tuesday that finds that such an action would actually do more harm than good, and result in higher gas prices at the pump.

“A U.S. crude oil export ban would make the situation worse—for the United States and the world—at a time when global supply chains are already under exceptional strain,” said Jim Burkhard, vice president and head of crude oil markets, IHS Markit. “Such a ban would disrupt global oil supply chains, run counter to decades of U.S. policy promoting the free flow of oil and gas, lead to inefficient and costly re-allocation of domestic crude oil production, disrupt supplies for allies and discourage domestic production—which would all put upward pressure on U.S. gasoline prices. It would also send an unnerving signal to allies and partners about the reliability of the United States.”

Mr. Biden was happy to send such an unnerving signal to Canada and the Province of Alberta with his executive order to cancel the Keystone XL pipeline on his first day in office. But Burkhard points specifically to supply chain disruptions an export ban would inevitably cause as leading to higher prices for crude oil and thus gas prices.

“Removing the 3 million barrels per day of crude that the United States exports to Europe, Asia and elsewhere would deliver a shock to the world market. The lost barrels would have to be replaced from somewhere else. And it is not clear if all of that could or would be replaced in a tight market,” said Burkhard. “Such a disruption of international crude oil flows would lead to a scramble to find other oil and generate more upward pressure on crude oil prices—and thus increase the price of U.S. gasoline.”

IHS Markit reiterates the points made above about the refining imbalance in the U.S. the previous export ban had already produced, and also points to geography as a complicating factor.

“Without the ability to export U.S. crude, you enter a situation where there is a tighter global oil market or U.S. refineries are inefficiently processing types of crude that they are not configured for, or both,” said Kurt Barrow, vice president, oil markets, midstream and downstream, IHS Markit. “This would lead to supply chain and processing inefficiencies and possibly even higher gasoline prices as a direct result of an export ban.”

None of this is rocket science – it’s all just common sense for anyone who actually understands how crude oil markets work in the U.S. and globally. The IHS Markit report concludes with another bit of market-based common sense, pointing out that the best way to reduce commodity prices in a market governed by the laws of supply and demand is to increase supply:

The most effective supply-side force that could lower oil prices is more oil production, the analysis finds. The United States is currently expected to be the world’s leading source of oil production growth in 2022. The imposition of a crude export ban could place that growth in jeopardy.

Go figure. This really is not a hard question, or it wouldn’t be if the Biden Administration and congressional Democrats weren’t so focused on inhibiting the U.S. domestic oil and gas industry as a part of their Green New Deal agenda. The fact that the proposition for such a counterproductive policy has even been raised as a possibility says nothing good about what goes on in our nation’s capital.

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