Energy Secretary Jennifer Granholm recently put an end to speculation about whether an oil export ban could succeed. She clearly stated at a meeting with the National Petroleum Council, “We are not considering reinstating the ban on exports. I’ve heard you loud and clear, and so has the White House.”
This is welcome news for the U.S. energy industry, but the secretary also urged producers to get their “rig counts up” and “take advantage of the leases that you have,” sending mixed signals from the administration to industry.
With gasoline prices already quite high and consumers concerned that they will rise further, some senators have argued that the United States should ban oil exports, reasoning that keeping oil here at home will lower costs. But market realities show this is not accurate. In fact, an export ban is likely to raise gasoline prices, and the Biden administration should permanently put the idea to rest.
Consider two basic facts about the U.S. oil market. First, not all oil is exactly the same. The boom in American oil production has mostly been in light oil and condensates. On the other hand, U.S. refining capacity has been built mostly to process heavier grades of crude oil imported from Canada and elsewhere. The result is that the U.S. has more light oil than it needs domestically. That excess had led to robust exports, dropping the trade deficit for petroleum and related products from $431 billion in 2008 to balance in 2020. In short, the removal of restrictions on oil trade benefits U.S. consumers.
Second, the relative price of domestic versus imported oil has flipped. In 2008, domestic real crude oil prices exceeded foreign prices by more than $3 per barrel. This flipped in 2015, when domestic real prices fell to about $4 per barrel lower than foreign prices. With the U.S. producing more light oil than it could use, U.S. producers had eager markets for exports. Once the export ban was lifted, exports jumped from 465,000 barrels per day in 10 countries in 2015 to almost 3 million barrels per day in 43 countries in 2019.
This powerful export market means the U.S. is now making a major contribution to global oil trade, joining OPEC and other major producers in a carefully balanced system. That’s one main reason an export ban is so dangerous. To remove nearly 3 million barrels from that market suddenly could be catastrophic. Consider that the September 2019 attack on oil supplies from Abqaiq, Saudi Arabia, took a similar amount of production offline, shocking the market. With oil prices now facing upward pressure, it should be evident that the removal of 3 million barrels per day could add increased volatility to an already-suffering COVID-19-era global economy.
The lost barrels would have to be replaced from somewhere else — most likely from OPEC. This would represent a veritable Christmas gift to a major American competitor, allowing OPEC to gain market share and exert even more influence over the global oil marketplace. As Jim Burkhard explains, this will actually cause oil prices, and subsequently American gas prices, to rise.
Moreover, an export ban would discourage domestic oil production and reduce global supplies even further. Kevin Book of ClearView Energy Partners has stated that banning exports would initially lower U.S. oil prices, but in the process, it would cause U.S. production to decrease. With a reduced crude oil supply available globally, energy prices will rise even higher.
With the U.S. Energy Information Administration’s winter outlook already predicting sharp price increases this winter, it is evident that an oil export ban is not the answer to rising energy prices. The approach would be counterproductive and would likely backfire, catching U.S. consumers in the crossfire. If we want to help consumers in the long run, the answer is more oil production, not less. With the U.S. expected to be the world’s leading source of oil production growth in 2022, this is no time to hit the brakes. U.S. leaders would do well to consider the far-reaching effects of an oil export ban and choose better options that will alleviate problems, not worsen them.
Guy Caruso is a former administrator of the U.S. Energy Information Administration and a Center for Strategic and International Studies senior adviser in the Energy Security and Climate Change Program.
