The big winners or losers in the ongoing debate over whether to ease existing restrictions on crude oil exports would be not American drivers but the nation’s refiners, the U.S. Energy Information Administration said in a study released today.
If restrictions on exporting U.S.-produced crude were lifted, "petroleum product prices in the United States, including gasoline prices, would be either unchanged or slightly reduced," the agency concluded in an analysis.
Refiners’ profit margins, on the other hand, would be trimmed along with the price spread between domestic crude, which drives input costs, and world crude, around which refined product prices are set, EIA said.
The assessment is the last in a string of studies by EIA, the Energy Department’s analytical arm, looking at the potential consequences of easing federal restrictions on crude oil exports that date back to the 1970s Arab oil embargo (EnergyWire, May 7; EnergyWire, April 7). Demand for EIA’s input on the subject has been led by oil interests in Congress, particularly Alaska Republican Lisa Murkowski, who leads the Senate Environment and Natural Resources Committee.
In its latest look at the issue, EIA compared various scenarios for domestic oil and gas production levels and world oil prices with and without current policy restrictions that limit crude exports other than those to Canada and from certain U.S. oil fields in Alaska and California.
The analysis found that under current export policy, domestic production in 2025 would range between 9.5 million barrels per day and 13.6 million barrels per day, depending in part on world oil prices as measured by the Brent crude index.
Domestic oil prices, as measured by the West Texas Intermediate (WTI) benchmark, would average about $15 per barrel below that during the 2020 to 2025 time frame, EIA predicted, with the discount reflecting the price incentive needed to spur domestic refiners to invest in additional processing capacity that would be needed to handle the additional light, sweet crude produced.
The assessment found that without export restrictions, the Brent-WTI spread would range between $6 and $8 per barrel.
That price spread "is consistent with the costs of moving WTI from Cushing, Oklahoma, to overseas markets where it might compete with Brent," EIA said, meaning that level of price spread represents a new normal for U.S. industry.
"The historical situation of approximate parity reflected competition between Brent- and WTI-based crudes in the Gulf Coast and Cushing where Brent-based crudes have now been largely displaced," analysts added.
That is significant because export policy critics often point to the size of the Brent-WTI spread as evidence that current export policies are hurting U.S. producers by pushing down the value of their product relative to world markets.
EIA’s modeling suggests that in cases where the Brent-WTI spread is in this low range, U.S. producers would not see higher prices from a lifting of export restrictions and would not boost output. In cases where that price spread grows, broadened oil exports would lead to higher wellhead prices for domestic producers and additional production, the agency said.
Number-crunching for refiners
The biggest impacts of a policy change might fall on domestic refiners, which have enjoyed booming profits as world crude prices have plummeted while gasoline prices have stayed strong.
In August, Valero Energy Corp. reported that its refining profits had nearly doubled, while integrated supermajors have leaned on their refining businesses to offset price impacts on their upstream production arms (EnergyWire, Aug. 3).
EIA said refinery profits could take a hit from a policy change.
"A rough calculation suggests that refining sector gross profits (gross revenue net of crude costs) in the [high oil and gas resource] case are about $22.7 billion lower in 2025 without crude oil export restrictions than they would be if those restrictions were maintained," the authors wrote.
Regardless of the oil export policy question, EIA said domestic refiners have numbers on their side.
"Even with the removal of export restrictions, the projected Brent-WTI spread would still be higher than its average level in 2014," the agency said.
"With or without current crude oil export restrictions, domestic refiners are also expected to maintain a significant advantage compared to offshore refiners given the continued projected availability of low-cost domestic natural gas, which is used as both a fuel and feedstock by refiners."
EIA’s analysis suggests that if export restrictions remain in place, U.S. refiners will invest in new equipment to handle the domestic light, sweet oil glut, "notwithstanding the risk of future changes in crude oil export policy or market conditions."
Click here for EIA’s report.