The recent rise in domestic crude oil production from 5.6 MMb/d in 2009 to 8.7 MMb/d 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 US, might affect markets for both crude oil and petroleum products over the next decade. A new US Energy Information Administration (EIA) report, “Effects of Removing Restrictions on US 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 MMb/d over the next decade. However, in two other analysis cases where domestic production in 2025 ranges between 11.7 MMb/d and 13.6 MMb/d, projections without export restrictions show increased domestic production, higher crude exports, reduced product exports, and slightly lower gasoline prices to US consumers compared to parallel cases that maintain current export restrictions.
Domestic crude production: The variation in projected production 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. As noted, there is a considerable spread in projected domestic production across these cases. The removal of 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 MMb/d through 2025. However, the removal of crude export restrictions leads to additional production of between 0.4 MMb/d and 0.5 MMb/d by 2025 in the high oil and gas resource (HOGR) and HOGR/low price (HOGR/LP) cases that have significantly higher baseline production based on more optimistic resource and technology assumptions.
US gasoline prices: Petroleum product prices in the US, 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 US have a much stronger relationship to North Sea Brent prices than to West Texas Intermediate (WTI) prices. 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 unless increased domestic production is fully offset by production cuts elsewhere. The looser balance implies lower Brent prices, which in turn result in slightly lower petroleum product prices for US consumers.
Trade in crude oil and petroleum products: Combined net exports of crude oil and petroleum products from the US are generally higher in cases with higher US crude oil production regardless of US crude oil export policies. However, crude oil export policies materially affect the mix between crude and 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 and product exports in cases where crude oil exports are unrestricted. 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 parallel cases with current crude oil export restrictions in place.
Although unrestricted exports of US crude oil would either leave global crude prices unchanged or result in a small price reduction 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. As noted, resource and technology outcomes as well as global price drivers will affect growth in US crude oil production whether or not current US crude oil export policies are maintained.
EIA’s full analysis report provides additional insight into implications for domestic refinery capacity and operations as well as upstream producers. It also identifies key factors and assumptions that matter for 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 streams for imported crude used in US refineries, the extent of the global production response, if any, to increased domestic production, and possibilities for expanding US processing capacity if domestic production turns out to be high and current crude export restrictions remain in place.
Image: Graph showing effects of removing restrictions on US crude oil exports/US Energy Information Administration