The US has recently begun exporting oil after a 40-year ban was lifted by the Congress. This surprising change in policy has led US oil producers to enjoy free access to the global markets now. In a world that's already in an oversupply situation with respect to crude oil, what are the implications of such a decision?
The US begins exporting oil: What was the major cause behind this decision?
In 1973, an OPEC oil embargo had banned crude oil sales to US and this had created a boom in the gas prices and an immense shortage of crude oil. Officially, US banned oil exports in 1975 which was signed into a law. 40 years later, the world is witnessing a booming US shale oil production creating a supply glut that even sent oil prices below $30 per barrel. US Congress voted to remove the ban in December 2015 to boost the US oil industry and to help allies in Asia and Europe become less dependent on supplies from Middle East and Russia. Soon after Congress lifted a 40-year ban on oil export, the first shipments of the crude oil left for Europe from US ports. NuStar Energy (NS) and ConocoPhillips became the first exporters of US-produced light crude oil.
What's the present scenario concerning US oil exports?
Unrestricted shipments of US crude oil would allow the country to secure its place among the leading global oil producers. US oil exports can be viewed with relief by the nations worried about possible supply disruptions. Currently, many oil producers are located in countries prone to geopolitical unrest, with fear of war causing oil supply issues. There's no domestic oil scarcity that justifies the avoidance of exports. Moreover, the dramatic drop in oil prices in 2015 has led to over 100,000 job cuts in the energy industry. In the long run, US oil exports can help the energy industry save jobs if they are able to manage supply and oil exports appropriately. Unfortunately, the US Gulf Coast has a reputation for not having the infrastructure to load the huge super-tankers used for long-distance shipments.
Has there been any opposition to the exports?
A number of US refiners oppose the exports as they've benefited from buying oil at the cheaper domestic price and then have sold it at a higher global price when there has been a lack of oil supply. The US Energy Information Administration have analysed that the lifting of this ban would cut jobs at the refineries and cause a $22 billion loss in annual profits by 2025. Environmental groups also wanted the ban to remain as climate and communities are threatened by excessive oil production.
Influence on the price of oil, stocks and indices related to the commodity
If the oil price rises above $50, there will be a stronger incentive for US producers to boost drilling and export the crude overseas. This was estimated by the research firm Wood Mackenzie. Lifting of export ban caused stocks of major oil companies, such as ExxonMobil, Occidental Petroleum Corporation and Chevron Corporation to be on upward trend. Indices like S&P GSCI commodity index that includes US crude oil, and NYSE that lists the major oil companies; are estimated to be on uptrend from an export boost.
Removal of the ban on oil exports was a broadly expected event since American oil has found new destinations to sell its oil and the demand for oil continues to be strong. While the short-term impact might be limited, this may bring about a long-term positive consequence for both the oil companies and the commodity traders.
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