As the debate over whether to lift the U.S. ban on crude oil exports intensifies, producers will clearly benefit, but the situation for refiners is more complicated. Still, most are lining up on the side of big oil and free trade.
For the producing majors, lifting the export ban is a clear win because all that increased crude production at home has reduced prices while at the same time, new horizontal drilling methods are much more expensive than the conventional. But for refiners, who are enjoying the cheap domestic prices for crude, the math is not that simple. The U.S. banned most oil exports after the Arab oil embargo of the 1970s.
While supermajor oil companies like Exxon Mobil (NYSE:XOM) and ConocoPhillips (NYSE:COP) are keen to see the U.S. ban on oil exports lifted, at least one big U.S. refiner, Valero Energy Corp. (NYSE:VLO), which has profited from the ban, is speaking out against the gaining momentum behind the idea. Valero Energy buys cheap oil in the U.S. and sells gasoline and diesel to Europe, Latin America, and West Africa. Valero is fearful that its profits would take a hit because lifting the crude export ban would potentially raise oil prices at home and in turn push prices up at the gas pump, leading to refinery closures that have only just recouped from earlier high oil import prices.
But not all refiners agree with Valero — on principle. Phillips 66 (NYSE:PSX) says exports of crude oil and other products are good for the US and contribute to a strong balance of trade, and Marathon Petroleum (NYSE:MPC) says it supports free markets. Tesoro Corp. (NYSE:TSO) has also lined up for exports. “We don’t oppose lifting the crude-oil export ban, as we fully support free markets,” Marathon spokesperson Stefanie Griffith said in an emailed statement to Reuters. Phillips 66 says exports of crude oil and other products “are good for our country and contribute to a strong balance of trade,” Reuters quoted a spokesperson as saying.
Increasingly, it looks like Valero is alone in its fight against lifting the export ban, which is indicative of how things will go — eventually. “We are not dealing with an era of scarcity, we are dealing with a situation of abundance,” Ken Cohen, Exxon’s vice president of public and government affairs, told the Wall Street Journal.
Epitaphs like this one are clearly gaining ground in the debate led by Senator Lisa Murkowsi. Murkowsi plans to introduce legislation to lift the ban this year — which will make the issue the biggest one of 2014, even bigger than Keystone XL.
Originally written for OilPrice.com, a website that focuses on news and analysis on topics of alternative energy, geopolitics, and oil and gas. OilPrice.com is written for an educated audience that includes investors, fund managers, resource bankers, traders, and energy market professionals around the world.
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