Free trade in crude oil is in U.S. interests

LONDON, Sept 30 (Reuters) - U.S. oil refiners have been among the biggest beneficiaries of free trade in the last decade, so it is ironic some continue to lobby hard to maintain the protectionist ban on crude exports.

LONDON, Sept 30 (Reuters) - U.S. oil refiners have been among the biggest beneficiaries of free trade in the last decade, so it is ironic some continue to lobby hard to maintain the protectionist ban on crude exports.

Domestic consumption of oil-based products fell by just over 2 million barrels per day (b/d) between 2005 and 2013, according to the U.S. Energy Information Administration.

Refiners turned to export markets to fill the gap, increasing exports of finished petroleum products and other refinery liquids by just less than 2 million b/d over the same period. ( )

The renaissance in U.S. refining stems from the shale boom, but it would not have been possible without free trade policies guaranteeing access to export markets.

Production, profits and jobs at U.S. refineries are increasingly underpinned by exports to Europe, Latin America and Asia. Without exports, falling demand at home for gasoline, diesel and fuel oil would have forced many refineries to close.


Several leading shale oil producers have been lobbying to lift the restrictions on crude exports. Most refiners have quietly accepted that the case for free trade applies to unprocessed crude as well.

But some smaller and more domestically focused operators continue to oppose any effort to ease or lift the restrictions on crude exports. Four smaller refiners have formed Consumers and Refiners United for Domestic Energy (CRUDE) to lobby Congress and the White House against repealing the four-decade old restrictions.

The crude export ban was originally introduced in response to the 1973 oil embargo, in which members of the Organization of Arab Exporting Countries (OAPEC) cut production and banned exports to the United States and the Netherlands in retaliation for their support for Israel.

The U.S. oil export ban was meant to reserve U.S. energy for U.S. customers after supplies were cut from Saudi Arabia, Kuwait, Abu Dhabi, Bahrain, Qatar, Libya, Algeria, Egypt, Syria and Iraq.

The original logic of the ban has long since become moot in the changed strategic environment of the 21st century.

But opponents claim that permitting crude exports could harm American consumers and workers by raising fuel prices and leading to refinery closures.

Neither outcome is likely. There is no rational basis for maintaining a near-total ban on exporting crude while allowing refined products to be exported freely.

Permitting crude oil exports would not raise the price of finished fuels such as gasoline and home heating oil for U.S. companies and consumers.


Unlike crude, U.S. fuel prices are set in global markets and track international benchmarks such as Brent rather than domestic crude prices such as WTI or Bakken.

With U.S. refiners now exporting more than 1 million barrels of distillates, half a million barrels of gasoline and 200,000 barrels of jet fuel every day, arbitrage ensures American consumers pay the same at the pump as motorists abroad. Any price changes as a result of lifting the ban would be trivial.

The principal effect of the export ban is to transfer profits from domestic crude producers to refiners by artificially depressing the price of domestic crude oil while allowing product prices to be set at international levels.

Restrictions have boosted the profits of refineries and guaranteed them market share without making fuel any cheaper for consumers, at the expense of oil producers and royalty owners.

Export opponents imply jobs might be lost and refineries might close if the ban were lifted, but there is no real reason to expect either outcome.

U.S. refineries would remain cost-advantaged by their proximity to domestic production. Most are also considerably more sophisticated than competitors in Europe and Latin America, so they have a technology advantage as well.

If the export ban is lifted, there are unlikely to be any significant refinery closures or job losses. Besides, focusing exclusively on refinery employment is too narrow.

U.S. refineries directly employ around 76,000 workers, according to the U.S. Bureau of Labor Statistics (BLS), compared with more than 210,000 workers directly engaged in oil and gas drilling.


Refineries have created fewer than 10,000 extra jobs over the past decade, while increased oil and gas production has generated nearly 100,000 and that number is still increasing.

Wage rates in field production and refineries are similar, according to the BLS, not least because many petroleum engineers and other highly skilled workers are equally able to find employment in the upstream or downstream sections of the industry.

Government policy should aim to maximize well-paid jobs across the industry, whether upstream, midstream or downstream, rather than in just one part of it.

The export ban is sometimes justified on the public interest and national security grounds that it reserves U.S. oil for U.S. customers and maintains a strong domestic petroleum industry.

But the ban does nothing of the sort. More than 4 million barrels of oil and gas liquids are already exported every day, mostly in the form of diesel, gasoline and liquefied petroleum gas.

Thanks to the shale revolution, the United States has experienced a boom in oil and gas jobs and lower prices for both natural gas and oil products.

As a result of advances in drilling, it has a strong comparative advantage in oil and gas production and should focus on maximizing oilfield output and employment, rather than subsidizing refineries that do not need the help.

The ban on crude exports is illogical, unnecessary and serves only to enrich shareholders in a small number of domestically focused refineries.


It does nothing to promote jobs or cut fuel prices for ordinary Americans. Instead it exposes the United States to charges of hypocrisy when U.S. officials try to promote liberalization and oppose barriers erected by other countries, such as China's restrictions on the export of rare earth elements.

Boosting domestic production, minimizing oil imports and maximizing exports serves the strategic interests of the United States by reducing global price volatility, ensuring the stable flow of energy to allies and reducing the influence of other energy exporters who are hostile to the United States.

The case for Congress and the president to lift outdated restrictions on crude exports is overwhelming. Lawmakers and the White House should act promptly once the midterm elections are over.

To continue enforcing the ban could be seen only as a cynical and arbitrary exercise in protectionism on behalf of a small number of vocal refinery owners.

By John Kemp
John Kemp is a Reuters market analyst. The views expressed are his own.

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