Sunday, December 27, 2015

Not Ready For Prime Time -- My Thoughts On Repealing The Ban On US Crude Oil Imports -- December 27, 2015


December 28, 2015: in the original post I mentioned Harold Hamm. I see that he has commented on US crude oil, prices, and exports.
Original Post
I thought I had posted my thoughts on what the repeal of the crude oil export ban means for the US. I had sent e-mail comments to a reader with intentions to post those comments, but then I forgot. What little I have posted suggests I have been "confused" on the subject. It's a fluid situation (no pun intended), and it's likely my thoughts will change again. Whatever.

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.

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.
Again, this is not ready for prime time, but I at least wanted to get something down "on paper."

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 Los Angeles Times, this may be the best summation (written before the ban was lifted):
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.

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