By Ed Crooks in New York

An oil tanker
©Bloomberg

Ending the US ban on crude oil exports could raise the country’s production by more than 1m barrels a day, according to IHS, a consultancy.

In a study released on Thursday morning, IHS argued that allowing exports would improve the fit between crude production and refining capacity in the US, and narrow the price differential between US oil benchmarks and their internationally traded counterparts, helping production companies to expand their output by an average of 1.2m b/d during 2016-30.

The consultancy also suggested that allowing crude exports would create or support almost 1m jobs by 2018, and have a modest downward effect on US retail petrol prices.

Daniel Yergin, IHS vice-chairman, said the export ban first introduced in 1975 had made sense only to support the US oil price controls of the 1970s, but had been redundant for decades since those controls were abolished in 1981.

He added that the near-total ban on US crude exports was threatening to create “gridlock” in the industry, because the shale revolution had led to a growing mismatch between booming production of light sweet (low sulphur) oil, and the refining capacity configured to process that crude most effectively.

“It’s too much of a good thing,” Mr Yergin said.

The issue of crude oil exports has divided the US oil industry, with producers such as Continental Resources in favour of ending the ban, but refiners including Valero Energy calling for it to be retained. Many refiners have benefited from using cheaper US crude as a feedstock, which has both helped improve their profitability and enabled a boom in US oil products exports.

The IHS study was backed by oil production and service companies including Continental, ExxonMobil, Chevron, ConocoPhillips, Chesapeake Energy and Halliburton, but IHS says the findings are all its own.

US crude oil exports are very tightly restricted and are generally prohibited except for sales to Canada, which have been growing fast in recent months but still take only about 3 per cent of US production. The remaining 97 per cent has to be refined in the US, and refiners have already started to say that they are sourcing all the light sweet oil they need from domestic production, displacing imports completely.

The problems will increase if US production continues to grow in excess of demand from refineries, because that will drive down the price of domestic West Texas Intermediate or Light Louisiana Sweet crude relative to the internationally traded Brent benchmark.

The spread between Brent and WTI is about $7 a barrel at the moment; not particularly high by the standards of recent years, but IHS believes it is likely to widen.

If that happens, it will put pressure on the finances of some US oil producers and choke off marginal development projects.

Nick Butler

Nick Butler

Nick’s blog looks at the relationship between energy and power, plus the global trends and influences on the industry.

The US government’s Energy Information Administration has predicted that US oil production will rise from 8m b/d at the start of the year to about 9.6m b/d by 2019, and then gradually start to decline.

IHS has a more optimistic view, predicting a later, higher peak in 2022 at 11.2m b/d, but says it could be even higher if the constraint caused by the export ban is relaxed.

It predicts a surge in investment if exports are allowed, which would both add 1.2m b/d to oil production and create or support 964,000 jobs directly, indirectly and “induced” – thanks to the additional investment if crude exports are allowed.

It adds that it expects the effect on US petrol prices to be modest: an average of an 8 cents a gallon reduction. The study shows evidence that US gasoline prices are more closely correlated with international prices than with the price of US crude, suggesting that there is unlikely to be much impact on American drivers, even if refiners lose their captive source of cheap crude.

Obama administration officials have said they are studying the possibility of lifting the ban, and the EIA is preparing a series of reports on the scale of the problem and the possible effects of a change in the rules, which are scheduled to be published over the next six months.

However, analysts have suggested that however compelling the economics of allowing crude exports might seem, ending the ban may be politically difficult, especially for a Democratic president.

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