Misconceptions feed reluctance to allow export of US crude

June 9, 2014
Three misconceptions make US officials reluctant to allow the export of crude oil.

Three misconceptions make US officials reluctant to allow the export of crude oil. They are:

• The US will become a net oil exporter

• Oil is oil.

• Exporting crude would raise the US price of gasoline.

Expectations about the country's becoming a net exporter trigger a strange hoarding reflex. Shouldn't the US "keep" its oil?

Well, no, not if the oil has greater value elsewhere.

The US probably won't become able to produce more oil than it needs, anyway. It remains a net importer of nearly 6 million b/d. Further production gains and consumption cuts probably won't close that gap.

Recent developments make clear that oil is not all the same, that its quality varies widely.

US production increases are almost all of light, sweet crude and NGL. That creates problems for refineries—many of them in the Midwest and on the Gulf Coast—designed for large doses of heavy, sour feedstock.

For the system to work optimally, the crude slate needs to match refinery design. By that standard, the Gulf Coast increasingly has too much light material and too little heavy feed.

Alignment would come by allowing bitumen from Canada to displace light crude and condensate not needed on the Gulf. Surplus light material should be able to move to where it's needed. Condensate, in particular, needs to move to Asia.

Yet current law not only disallows most exports of crude oil but also leaves unclear whether gas-plant condensate falls subject to the ban.

Fear about gasoline prices breeds reluctance to act before an election. But gasoline prices are influenced far more by markets in Europe, to which products can be exported, than by US crude values suppressed by Gulf Coast imbalances. Allowing crude exports would have little effect on the price of gasoline.

The Energy Information Administration has begun breaking out crude quality in its production forecasts. The move usefully underscores the growing importance of quality differentials.

Officials should get the message and accommodate oil-trade policy to modern realities.