Last December, the 40-year ban on exporting oil from the United States was lifted and, as a result, American oil can be found across the globe. The new arrangements may mean more money for U.S. producers but poses a potential problem for OPEC and the Saudis.
Just a few weeks after the ban was lifted, two tankers full of American oil departed Corpus Christi, Texas on New Year’s Eve, bound for Bavaria. The historical shipment is the first of many projected to come throughout the year, with a long-term goal of shipping oil to not only Europe but also Latin America and Asia.
So why is all this U.S. oil being exported? For one reason, we have a stockpile we aren’t using. Another reason is that it’s fairly cheap for companies to transport oil from fields in North Dakota, Oklahoma and Texas to the Gulf of Mexico. Not to mention the fact that oil is being traded at a discount to Brent crude — the benchmark for oil prices worldwide — so U.S.-based suppliers can reap even more profit by exporting.
It’s not as if the U.S. hasn’t been exporting oil at all since the ban went into effect. Before last December, we sold as much as 500,000 barrels each day to other countries via Alaska and a few other ports that had not been banned from shipping oil after the 1973 OPEC oil embargo. Now that the ban has lifted, companies such as Gunvor Group Ltd., a commodities trader based in Geneva, plans to ship as much as 600,000 barrels currently in storage in Panama.
Exxon became the first major American oil company to ship oil overseas, sending a tanker from Beaumont, Texas, to its refinery in Sicily, Italy. It seems that the amount of oil shipping from the U.S. now and in the future is spooking the markets. Currently, American oil is landing in — or set to land in — France, Germany, the Netherlands, Israel, China and Panama, according to Bloomberg News.
The overall effect of said exports is yet to be determined, but experts are keeping a close eye on the situation. The move is a “game changer,” according to Mark Mills, senior fellow at the Manhattan Institute. The Saudis and OPEC control 40 percent of the world’s oil supply, but with the U.S. exporting oil to European and Asian locations, the Saudis may be losing their grip on the industry. The new exporting ability also puts more political power in the United States’ hands. As Bloomberg reporters Joe Carroll and Harry Weber write, lifting the ban “created geopolitical winners and losers.”
“The U.S., awash in shale oil, has gained while powerful exporters like Russia and Saudi Arabia, for whom oil represents not just profits but also power, find themselves on the downswing.” Saudi Arabia’s petroleum minister, Ali al-Naimi, nevertheless said in February that U.S. crude exports will lead to “improved efficiency and flexibility of the global market.” So, at least for the time being, the Saudis are optimistic.
Deloitte’s 2016 Outlook on the Oil and Gas Industry highlighted the decline in demand for oil during 2015 as a potential problem in 2016. However, the Asian demand for oil — particularly in China — was predicted to have a stabilizing effect on decreased domestic demand. It seems reasonable to assume that oil companies will continue to ship oil overseas to Asia, Europe and elsewhere in an effort to stimulate the industry as Americans use less.
It’s usually a positive thing when a president lifts bans on trade with other countries, but will the lift on the 40-year oil export ban prove to be advantageous? What do you think?
—Megan Winkler
Megan Winkler is an author, historian, Neurosculpting® meditation coach, certified nutritional consultant and DIY diva. When she’s not writing or teaching a class, Megan can be found in the water, on a yoga mat, learning a new instrument or singing karaoke. Her passion for a healthy mind-body-spirit relationship motivates her to explore all the natural world has to offer.
Sources:
http://www.wsj.com/articles/u-s-exports-first-freely-traded-oil-in-40-years-1452643962
http://www.bloomberg.com/news/articles/2016-03-18/from-china-to-switzerland-u-s-crude-oil-exports-go-mainstream
http://www.bloomberg.com/news/articles/2016-02-23/-liquid-freedom-sails-from-texas-tilting-power-in-global-oil
http://www2.deloitte.com/us/en/pages/energy-and-resources/articles/oil-and-gas-industry-outlook.html