December 28, 2015: in the original post I mentioned Harold Hamm. I see that he has commented on US crude oil, prices, and exports.
This is what I wrote to the reader in an e-mail (with some editing). It is probably not ready for prime time, but at least provides a more definitive look at what my thoughts are at the moment.
A couple weeks ago I wrote that the repeal on the ban to export US crude oil was not that big a deal because there was no market for WTI as long as Brent was less expensive.Again, this is not ready for prime time, but I at least wanted to get something down "on paper."
Analysts at Raymond James said the same thing; that's where I first saw it.
But I've changed my position on that. The repeal of the ban is a huge deal, mostly because the concern about adequate storage is no longer an issue. It gets back to margins.
Without the ability to export crude oil, Harold Hamm was forced into leaving oil in the ground (DUCs) or paying Cushing's fees to store it. Now, however, if Harold Hamm can actually sell a bbl of oil to Vitol for more than it costs to store it or leave it in the ground -- then Hamm comes out ahead. In other words, Harold Hamm now has has a global market, not simply Cushing and the East Coast refineries, to consider.
More importantly, for the US economy, there will be a mini-boom, or maybe a big boom, as big construction companies start getting contracts for new storage areas along the Gulf Coast, new terminals in anticipation of increased exports, etc.
Bottom line for me: the lifting of the ban on US crude oil imports is a big, big deal. Too many analysts are focusing on one data point: the price of WTI. That focus is way too narrow. Most of us can't remember what the global oil market was like 45 years ago when there was no ban on US crude oil exports, so we don't have any perspective.
For the archives, two articles on the issue, one from The Los Angeles Times and one from The Albuquerque Journal:
- From the latter, lifting of export ban unlikely to fuel growth anytime soon.
- From the former, is it time to lift the ban?
Free-market advocates said the export restriction has created an economically irrational world with bizarre distortions.
"It's acted as a kind of subsidy for oil refineries of U.S. light-type of oil," said Arthur Herman, a senior fellow at the Hudson Institute, a conservative think tank in Washington.
What's more, he noted, the export ban already has an exemption for Canada, where the U.S. is shipping more than half a million barrels of crude a day. And this summer the U.S. agreed to allow some light oil exports to Mexico.