EIA Study Gives nod to Crude Exports: Kemp

Gasoline prices in all parts of the United States are tied to Brent rather than the domestic crude oil benchmark WTI, according to a detailed study published on Thursday by the Energy Information Administration (EIA).

The EIA study removes the last principled objection to lifting the ban on U.S. crude oil exports - namely that it would lift domestic oil prices and through them the cost of filling up at the pump.

"While crude oil prices matter to those involved in producing oil or refining oil into products, most Americans and the policymakers who represent and serve them are mainly concerned with the price of gasoline and other refined products," EIA noted ("What drives U.S. gasoline prices?" Oct 30).

"The issue of which crude oil (Brent or WTI) matters most for U.S. gasoline prices is particularly relevant as policymakers in the executive branch and Congress consider the possibility of changes in current limitations on crude oil exports," the agency added.

In 2013, the average U.S. household spent $2,600 buying gasoline, according to EIA. Legislators from both Republican and Democratic parties are worried that lifting current restrictions on U.S. crude oil exports raises fuel bills for voters.

Over the past 18 months, U.S. lawmakers have repeatedly called for more evidence about the likely impact on pump prices before deciding whether to ease the current curbs, which were enacted in the 1970s in response to the Arab oil embargo ("History of U.S. controls on oil exports" Oct 24).

EIA, a respected and independent statistical and analytical arm of the U.S. Department of Energy, has responded with a comprehensive study of the relationship between Brent and WTI and the wholesale cost of gasoline in four major U.S. markets - New York Harbor, U.S. Gulf Coast, Chicago and Los Angeles.

"Brent crude oil prices are more important than WTI crude oil prices as a determinant of U.S. gasoline prices in all four regions studied, including the Midwest," the agency found.

"The WTI crude oil price lost much of its power to explain changes in U.S. gasoline prices after 2010, when its differential to Brent crude became wider and much more volatile."

An even more detailed examination showed that U.S. gasoline prices were more closely tied to Brent both before and after 2010.

The agency concluded: "The effect that a relaxation of current limitations on U.S. crude oil exports would have on U.S. gasoline prices would likely depend on its effect on international crude oil prices, such as Brent, rather than its effect on domestic crude prices."

GREENLIGHT FOR EXPORTS

EIA is too careful to say so explicitly, but the implication of the study is that lifting the export ban would raise selling prices and revenues for U.S. oil producers by increasing their access to overseas markets without raising fuel prices for U.S. motorists.

Increased U.S. oil exports might actually lower fuel bills for Americans if the move increased global crude supplies and brought down the price of Brent.

EIA's study is consistent with the findings of four other major statistical and modelling exercises conducted by private consultancies and reviewed by the Government Accountability Office on behalf of Congress ("Congressional study questions embargo-era oil policies" Oct 21).

No credible study has found evidence that ending oil export controls would raise gasoline prices for American motorists.

Further studies will not help legislators make up their minds. The time for studying is over, and the time for legislating has arrived.

Controls on crude oil exports are outdated and increasingly irrelevant. They harm U.S. oil producers without conferring any benefit on consumers. It is time to end them.

The president has sufficient authority to end the controls on his own, using authority conferred on him by the 1970s laws. President Ronald Reagan utilised precisely these powers to lift the controls on refined product exports in 1981 and oil exports to Canada in 1985.

Or Congress could authorise exports itself by enacting simple legislation to amend the relevant sections of the 1975 Energy Policy and Conservation Act; 1976 Naval Petroleum Reserves Production Act; 1977 Export Administration Amendments Act; 1978 Outer Continental Shelf Lands Act Amendments; and 1979 Export Administration Act.

It is possible to envisage a mixed approach, in which Congress amends the export control laws but leaves a final decision on whether exports are in the national interest to the president.

A mixed approach was used to approve exports from Alaska's North Slope, with Congress legislating to permit exports in 1995 but leaving the final decision to President Bill Clinton, who made the necessary determinations in 1996.

The question of which route is likely to be the most effective is a matter of political tactics. But once the mid-term elections are over, Congress and the White House should make resolving the export question a top priority.

By John Kemp