Report: US Oil Exports Could Help Lower Gasoline Prices

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US consumers are about to enjoy some of the lowest gasoline prices of any Labor Day weekend in nearly a decade. Cheap gasoline is more widespread across the nation as oil prices continue to fall. But a new government report shows that US consumers would continue to see relief at the gas pump if the US were to lift its 40-year ban on oil exports.

The report from the US Energy Information Administration, released Tuesday, shows that if the US were to remove its restrictions on exporting crude oil, domestic gasoline prices could actually fall, not rise as some feared.

The report, issued in response to requests from the Obama administration and Congress, addresses the possible impacts of nixing the oil export ban in order to reduce the growing US oil inventory, which continues to push down oil prices. A number of oil companies, too, have voiced support for exporting US oil as it would stimulate the economy and improve US petroleum production.

A Growing Inventory of US Oil

US oil exports may have been unthinkable just a few years ago, but the jump in domestic oil production has been significant in the last 5 years. As of 2011, the country was producing 5.6 million barrels per day (b/d) of crude oil. By 2014, that jumped to 8.7 b/d. The EIA predicts crude oil production in 2015 will reach 9.4 million b/d and remain at 9 million b/d in 2016. (The slight drop in the production forecast for next year is due to companies scaling back on projects amid falling oil prices.)  

Inventories are expected to continue to climb, too. The EIA projects that in 2025, the US will produce between 9.5 million b/d and 13.6 b/d. If the US were to decide to begin exporting some of its crude oil, the EIA determined gasoline prices and other petroleum product prices “would be either unchanged or slightly reduced,” the reported said.

How Would Gas Prices Fall Exactly?

The EIA explained gasoline prices in the US respond more to Brent crude oil prices than to the benchmark prices of West Texas Intermediate crude. When and if the US were to allow oil exports, the WTI price would increase, and US oil producers would react by increasing production, the EIA said. This creates a “looser” global supply/demand balance, which lowers Brent prices and in turn lowers gasoline and other petroleum product prices, the report stated.

The US currently allows “unrestricted exports of petroleum products but requires licensing of crude oil exports,” EIA said in the report. The Commerce Department also began allowing companies to export ultralight oil and minimal processing last year, and it gave the green light for the US to exchange crude withe Mexico. What impact, if any, this EIA report has on lifting the still in place oil export restrictions, remains to be seen. The Wall Street Journal reported earlier this week the White House declined to comment on the EIA assessment. However, Congress is expected to vote on legislation that would lift existing oil export bans this month.

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