Can the price of Gas ever go down?

What would happen it the US Repealed it Ban on Oil Export? Now that we are seeing that there never was an "Energy Crisis" and instead a Glut of Oil on the markets. If the US repeals the ban on exports, will we see releif in price at the pumps?
Here is a repost of Oil Pro by Gabriel Collins to give us a little more insight of what we might see.






Gabriel Collins

Attorney at Baker and Hostetler, LLP


Will Congress Repeal The Crude Oil Export Ban In Fall 2015?

Rising congressional support signals real promise that the ban on U.S. crude oil exports could be repealed within the next six months. The U.S. now exports more than 550 thousand barrels per day (kbd) of crude oil and another 120 to 140 kbd of condensate as of May 2015.1 Yet continuing restrictions mean producers can only access a handful of markets. Meanwhile, U.S. oil refiners are sourcing stranded domestic oil at cut-rate prices, processing it, and then turning around and freely exporting more than 2.5 million bpd of gasoline, diesel, and other refined products at premium global prices.

Low oil prices have emboldened Congress to seriously consider lifting the crude oil export ban. By my count at this time last year, nine lonely members of Congress publicly supported a repeal; now there are at least 150 (128 representatives and 22 senators). Exhibit 1 provides a cumulative summary of congressmen and -women who have publicly endorsed repealing the ban. These numbers will likely rise once representatives and senators return to Washington after the August recess.

Exhibit 1: Crude Oil Exports Are Rapidly Gaining Support in Congressenter image description here

WTI Spot Price (USD/bbl) and Number of Representatives and Senators Supporting Repeal of Export Ban; Source: Assorted Media Outlets, Draft Bill Texts from House of Representatives and Senate

Isn’t there a simpler way to repeal the ban? Yes, but it is not politically feasible at present. President Obama could rescind the ban by executive order and would simply need to show that doing so is in the “national interest.” In 1996, President Clinton justified a blanket approval of Alaskan North Slope crude oil exports to Asia on the basis that the export decision was in the national interest and (1) would not “diminish the total quantity or quality of petroleum available to the United States,” (2) would not “pose significant risks to the environment,” and (3) would not likely “cause sustained material oil supply shortages or sustained oil price increases above world market levels” that would injure consumers in the U.S. and its territories.2 These three national interest standards could be easily met today, but the administration’s political priorities in the energy and environment space likely preclude executive action to lift the ban. Hence the rising support in Congress for legislatively repealing it.

House and Senate advocates of repeal must contend with a mixed map of support that holds promise, but needs significant shoring up in order to amass a veto-proof two-thirds majority (Exhibit 2 and Exhibit 3). On the House side, the 128 supporters to date are clustered in the Rockies and Plains states, as well as Texas, Arizona, Tennessee, and North Carolina.

Exhibit 2: Levels of Support for Repeal of Crude Oil Export Ban in House Delegations, 19 August 2015

enter image description here

California and New York will likely remain bastions of opposition. Likewise for Pennsylvania, home to large independent refiners that benefit from discount-priced U.S. crude supplies stranded by the export ban. These populous states—with 98 House seats between them—will be key “battleground states” where House leaders must try to corral support from at least one-third of each state’s delegation. Expect supportive House Democrats such as Henry Cuellar of Texas to push their colleagues hard to try to garner votes in support. Opponents of crude oil exports will likely pressure President Obama to veto any legislation repealing the ban, so getting at least two-thirds support in the House will be an important priority.

On the Senate side, the politics are a bit different. The top oil-producing states, which other than Texas have smaller populations, wield higher influence than they do in the House since all states have two votes regardless of population. At least 22 senators currently support lifting the ban. Thus, if the Senate leadership can persuade the uncommitted senators in the Rocky Mountains, Heartland, and Gulf Coast and a few coastal Democrats to support repealing the ban, they will be well-positioned to pass the legislation. Achieving the two-thirds majority needed to override a presidential veto will be tougher, as Senator Murkowski and her colleagues would need to garner 11 more Democratic votes as well as ensure that all 54 Republican senators support the bill.

Exhibit 3: State-by-State Senate Support for Repealing the Crude Oil Export Ban, 19 August 2015

enter image description here

Many elected representatives’ primary point of hesitation when presented with the idea of repealing the crude oil export ban is simple: they fear voters will hold them responsible if gasoline prices increase. This visceral fear endures despite multiple credible studies showing that repealing the U.S. crude oil export ban is in fact much more likely to actually decrease—or at a minimum, stabilize—gasoline prices.3

Survey data from the University of Texas Energy Poll covering the period between September 2011 and March 2015 paint an interesting—and somewhat contradictory—picture of how consumers view gasoline price issues.4 On one hand, respondents consistently attributed the primary responsibility for gasoline prices to oil companies and market forces. Yet of a sample of more than 2,100 people surveyed by the UT Energy Poll before the November 2014 election cycle, 63 percent said they would be more likely to vote for the candidate who “promises to make gasoline less expensive.” From data points like these, many politicians are likely to infer that voters will punish them at the ballot box if gasoline prices rise in the wake of legislation to repeal the crude export ban.

Yet crude oil exports do not equal higher gasoline prices. Because gasoline is freely exportable, its price is already set globally regardless of how crude oil exports from the U.S. may or may not be restricted. Restricting exports and trapping surplus light, sweet crude within U.S. borders simply shifts rents to the refining industry.

The “crack spread,” which measures refiners’ profit margin from processing various crude oils, tells a clear story here. Prior to the shale boom, Brent crude was generally more profitable to process than WTI. Yet beginning in 2011, the profits from refining WTI crude at the U.S. Gulf Coast (and by extension, the shale crudes whose prices closely relate to WTI) rose dramatically relative to the Brent crude crack spread as domestic production increased (Exhibit 4). Refined product exports absorbed the initial wave of shale crude production, but by late 2013, continuing production growth in the shale plays and slower demand growth in key U.S. oil product export markets exacerbated the domestic crude supply glut.

Exhibit 4: U.S. Refiners Profit, Not Oil Producers and Consumers

enter image description here

Refined product and crude oil exports from U.S. (kbd), left axis, Spot WTI 3-2-1 crack spread minus Spot Brent 3-2-1 crack spread, USD/bbl, right axis; Source: EIA, Author’s Analysis

Furthermore, despite refiners’ access to large amounts of virtually captive shale crude supplies, gasoline prices can still spike and hit consumers’ wallets hard. For instance, between August 7 and August 14, 2015, a major refinery outage triggered a more than 50 percent upswing in Chicago-area retail gasoline prices, reaching approximately $3.23 per gallon—a level last seen when WTI crude was selling for twice its current price.5

The market case for exports of light, sweet is clear. The U.S. refining system is saturated with the light, low-sulfur shale crudes responsible for virtually all incremental U.S. crude oil supply growth in the past three to four years. Once U.S. refiners’ use of domestic crude rose into a consistent 50 percent to 55 percent range, crude oil exports trended sharply upwards, and domestic crude’s share of supply only fleetingly exceeded the 55 percent threshold (Exhibit 5). Moreover, there appears to be little room for additional shale barrels in the U.S. refining system. Refiners are running flat out, with capacity utilization rates exceeding 95 percent for the past seven weeks and counting, according to the EIA.

Exhibit 5: Refineries Are Saturated With Domestic Crude, Exports Can Help Rebalance the Market

enter image description here

Source: EIA, Author’s Analysis

Refined product exports cannot compensate for the existing glut of shale crudes, not to mention any future production growth. Likewise, new refinery capacity investments for processing light, sweet crudes will likely only make a marginal dent in the current shale crude glut. And if oil prices creep back up and producers become more efficient, even a few hundred thousand additional bpd will swamp expansions and put the market right back in its current state of light, sweet super-saturation.

There is a clear and compelling case for lifting the crude oil export ban and giving U.S. oil producers full access to global markets. Now is the time to harness these arguments and redouble efforts to persuade undecided members of Congress to back a repeal. Based on the rising congressional support analyzed in this article, the odds of the ban being repealed in the next six months are better than 50/50.




No comments

Post Your Comment:

Your email will not be published