Why the Oil Export Ban Could Be Overturned
Times were very different when the U.S. banned exporting unrefined crude oil four decades ago: In the wake of an oil embargo, world oil prices quadrulpled. But today, with abundant domestic oil supplies and persistent low prices, proposals to end a four-decade-old ban on exporting unrefined crude oil could gain traction.
The reason lies in the complex stew of global economics. On Thursday, the American Institute for Economic Research on Thursday released its Business Cycles Monthly, a comprehensive look at the state of the economy, and a forecast on what path it will take. January’s report, which focused on the role low oil prices are playing in the U.S. economy, predicted continued growth in the quarters ahead, tame inflation, and a generally optimistic outlook for the U.S. economy.
The report noted oil is down for three reasons, and it isn’t just abundant supplies of oil in shale deposits in the United States. First, Saudi Arabia has decided to protect its share of the global market by continuing to produce, which has put downward pressure on prices. Second, while the United States economy is growing, the picture isn’t nearly that rosy in Asia and Europe, reducing growth in demand. And finally, U.S. producers calibrated their output to when oil prices were higher, leading to high supplies in this country.
But despite abundant raw materials, this country lacks the capacity to refine all that oil. “By exporting the crude that comes from shale oil, producers could expand their output beyond the constraints currently imposed by the refining capacity. In this way lifting the ban on oil exports is likely to increase domestic crude oil production,” according to the report.
Environmentalists oppose the proposal, noting additional production is likely to lead to more pollution. But the report suggests that with energy security a fading issue, and with no sign of supplies falling or prices significantly rising, the 40-year-old ban may seem unnecessary: “American oil producers want access to global markets and as long as domestic pump prices remain low, U.S. consumers may not object.”
