EIA Says Effects of Removing Crude Export Limits Depend on Price, Resource Assumptions

A new study by the U.S. Energy Information Administration (EIA) on the potential implications of allowing more crude oil exports finds that effects on domestic crude oil production are key to determining the other effects of a policy change. Gasoline prices would be either unchanged or slightly reduced. Trade in crude oil and petroleum products would also be affected.

The recent rise in domestic crude oil production from 5.4 MMbpd in 2009 to 8.7 MMbpd in 2014 and the prospect of continued supply growth have sparked interest in the question of how the relaxation or removal of current policies, which restrict but do not ban exports of crude oil produced in the United States, might affect markets for both crude oil and petroleum products over the next decade. EIA’s new report, Effects of Removing Restrictions on U.S. Crude Oil Exports, explores this issue.

The analysis finds no difference between projections with and without current export restrictions in two analysis cases in which projected production with current export restrictions remains below 10.6 MMbpd over the next decade. However, in two other cases where domestic production in 2025 ranges between 11.7 MMbpd and 13.6 MMbpd, projections without export restrictions show increased domestic production, higher crude oil exports, reduced product exports, and slightly lower gasoline prices to U.S. consumers compared to cases that maintain current crude oil export restrictions.

Domestic crude oil production: The variations in projected production levels across the four baseline cases used in the report reflect differences in the characterization of oil resources and technology as well as future crude oil prices. There is a considerable spread in projected domestic production across these cases, as shown in the above graph.

The right-hand panel, which uses a much finer scale (0.2 MMbpd between labeled values on the vertical axis, compared to 2.0 MMbpd difference between labeled values on the left-hand panel), shows that the removal of current crude oil export restrictions does not lead to additional production in the Reference and Low Oil Price cases, where production remains at or below 10.6 MMbpd through 2025.

However, the removal of crude oil export restrictions leads to additional production of between 0.4 million b/d and 0.5 million b/d by 2025 in the high oil and gas resource (HOGR) and the high oil and gas resource/low oil price (HOGR/LP) cases. These two cases have significantly higher baseline production based on more optimistic resource and technology assumptions.

U.S. gasoline prices: Petroleum product prices in the United States, including gasoline prices, would be either unchanged or slightly reduced by the removal of current restrictions on crude oil exports. As shown in a previous EIA report, petroleum product prices throughout the United States have a much stronger relationship to North Sea Brent, an international crude oil benchmark price, than to West Texas Intermediate (WTI), a domestic benchmark price.

In the high production cases considered in this study (HOGR and HOGR/LP), the elimination of current restrictions on crude oil exports narrows the Brent-WTI spread by raising the WTI price. As domestic producers respond to the higher WTI price with higher production, the global supply/demand balance becomes looser (more supply than demand) unless increased domestic production is fully offset by production cuts elsewhere. The looser balance implies lower Brent prices, which in turn results in lower petroleum product prices for U.S. consumers.

Trade in crude oil and petroleum products: Combined net exports of crude oil and petroleum products from the United States are generally higher in cases with higher levels of U.S. crude oil production regardless of U.S. crude oil export policies. However, crude oil export policies materially affect the mix between crude oil and petroleum product exports, particularly in the HOGR and HOGR/LP cases, which have high levels of domestic production.

Crude oil exports tend to represent a larger share of combined crude oil and petroleum product exports in cases in which crude oil exports are unrestricted, as shown in the figures below. Also, in cases where the level of domestic crude production increases with the removal of crude oil export restrictions, total combined crude and product exports are higher than in similar cases with current crude oil export restrictions in place.

Although unrestricted exports of U.S. crude oil would leave global crude prices either unchanged or falling slightly compared to parallel cases that maintain current restrictions on crude oil exports, other factors affecting global supply and demand will largely determine whether global crude prices remain close to their current level, as in EIA’s low oil price case, or rise along a path closer to the Reference case trajectory. Global price drivers, as well as resource and technology outcomes, will affect growth in U.S. crude oil production regardless of decisions about future U.S. crude oil export policies.

EIA’s full report provides additional insight into implications for domestic refinery capacity and operations as well as for upstream producers. It also identifies key factors and assumptions that affect the results of EIA’s study and other work on this topic, including:

•The characterization of existing crude oil export policies

•The extent of continued opportunities to substitute domestically produced crude for imported crude used in U.S. refineries

•The extent of the global production response, if any, to increased domestic production

•The possibilities for expanding U.S. processing capacity if domestic production turns out to be high and current crude oil export restrictions remain in place

Additional analysis is provided in the full report, Effects of Removing Restrictions on U.S. Crude Oil Exports.

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