In positive news for the American crude oil market, the U.S. Congress lifted a 1975 ban on crude oil exports. The deal showed a rare spirit of compromise for the 18th Congress. Republicans supported lifting the ban and Democrats were able to get tax credits for wind and solar power in exchange for supporting it. The change is bound to have several immediate positive results.
Affects of Lifting the Ban
American oil derived from shale deposits produces a light, sweet crude oil that will gain in market share due to lifting the export ban. Additionally, international refineries will gain access to a wider range of oils resulting in more efficient operations. A third result is that West Texas Intermediate (WTI), which is a United States reference price, will become a global benchmark for lighter, high-grade crude oils as a comparison to the international benchmark provided by Brent, based on a mixture of heavy crude oils, leading to more efficient oil trading.
The oil industry is already seeing some change in the price premium of Brent to WTI which is declining. When shale production surged in the U.S. five years ago, WTI’s price fell below that of Brent. The reason for this fall is that U.S. oil refineries are better designed and equipped to process heavy, sour crude oil over light, sweet shale oil that was available. Since the oil couldn’t be exported, the price of light crude oil was forced down until American refineries would buy it.
While shipping oil overseas adds to the cost of the oil, oil industry experts speculate that interest in the different grades of crude oil from the U.S. will develop as other countries find lighter crude oil a better substitute for what they are currently using. It is likely that industry refineries will buy some just to experiment.