The decision by US President Barack Obama to open the door to US oil exports seeped out of Washington in a low-key manner last week, but the impact could be as explosive as a New Year’s Eve firework display.
The ban — imposed after the Middle East oil embargoes in the 1970s — has made it close to impossible to ship abroad the fruits of the US’ shale bonanza. It also long looked wrong-headed in the home of free trade.
The US Department of Commerce quietly overturned the four-decade-old policy by saying it had started to approve a backlog of requests to sell processed light oil to foreign buyers.
The issue is tremendously sensitive, which is possibly why the announcement came out at a time of year when most policymakers were still at home enjoying the Christmas holidays with their families.
Many manufacturers and many domestic consumers are totally opposed to domestic oil or gas production being exported, on the grounds that it could bring an end to cheaper local energy supplies and competitive advantages.
However, prospectors from the shales in Eagle Ford, Texas, and Marcellus, Pennsylvania, have been campaigning in Washington for a change in the law for some time, their calls growing more urgent now that some face potential financial trouble as the price of oil plunges from US$115 per barrel down to US$56.
Meanwhile, US oil sometimes sells at US$15 per barrel less on the local market as supply exceeds demand: not good for the frackers already burdened by their relatively high-cost operations.
However, by opening the door to exports — of slightly refined products — Washington has struck a more serious blow to its export rivals in Saudi Arabia, Russia and elsewhere.
Citigroup global head of commodities research Ed Morse had no trouble predicting that the move would “open up the floodgates to substantial increases in [US] exports by end 2015.”
The enormous growth in US production — alongside lower-than-expected world economic activity — has been a key trigger for the international crude price collapse.
The planned issue of new US export licences is seen by many as another stake in the heart of the OPEC organization, which has been struggling to find a consensus among its members about what to do. The cartel has watched with concern as the value of oil has fallen over the past six months, but has so far refused to cut its own production targets in a bid to force an upturn.
Supplies of the US’ light, “sweet” crude will be a particular threat to OPEC members such as Nigeria, which pumps a similar variety of oil.
Although the changes from the commerce department are couched in complex language and with plenty of caveats, many experts believe it could hasten the path to full crude oil exports from the US.
The introduction of the US to international markets can only be good for oil users, in that it broadens the supply sector and makes the commodity less vulnerable to geopolitical upheaval.
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