Crude Clash

Rethinking the Ban on Exporting U.S. Oil

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Exporting crude oil from the U.S. has long been largely illegal. Until lately, it has also been mostly unthinkable. Domestic production had been declining for decades and the country seemed hopelessly addicted to foreign supplies. Not anymore. Horizontal drilling and hydraulic fracturing have squeezed torrents of oil from shale rock deep underground. The U.S. produced more oil in 2013 than it imported for the first time since 1988 and in 2015 it surpassed Russia and Saudi Arabia to become the world’s biggest producer. Can exports be far behind?

The Situation

The U.S. bans most exports of crude oil, the stuff that comes from the ground before being turned into gasoline, heating fuel and other useful products. That’s been true since 1975, after an Arab oil embargo shocked the economy. Now production, which averaged 7.4 million barrels a day in 2013, is set to surge to 9.4 million barrels a day by the end of 2015, the most since 1972. That’s pushing down domestic prices more than foreign ones: West Texas Intermediate crude will average $49.62 a barrel in 2015, while Brent, the international benchmark, averages $54.40, the U.S. Energy Department estimates. While refineries benefit from cheaper costs compared with foreign competitors, producers want access to higher prices from overseas buyers. In June 2014, the U.S. opened that door a crack when the Commerce Department allowed Pioneer Natural Resources to export a type of minimally processed ultra-light oil known as condensate. In December, the government let companies know they could ship lightly refined condensate without special permission. And in June 2015, it decided to permit some crude oil exports to Mexico.

Source: U.S. Department of Energy data compiled by Bloomberg
Source: U.S. Department of Energy data compiled by Bloomberg

The Background

It may seem counterintuitive to talk about exporting crude oil when the U.S. still imports more than 7 million barrels a day, more than any other country. But crude oil isn’t perfectly fungible. Oil from different regions comes in different grades, meaning variations in density and sulfur content. The cost of moving crude by pipeline, rail or ship can also create bottlenecks. Most of the growth in U.S. production is light shale oil, but many refineries are configured to process heavier crudes from South America and the Middle East.

The Argument

Producers that want to sell oil at higher prices overseas argue that keeping the export ban will push down domestic prices until drilling becomes unprofitable, jeopardizing the U.S. goal of energy independence. Refiners support the ban to maintain their cost advantage, which helps them sell record amounts of fuels abroad (because exports of oil products are permitted). European and Asian refiners, by contrast, would benefit from access to U.S. crude. Some politicians, such as Democratic Senators Ron Wyden of Oregon and Robert Menendez of New Jersey, contend that allowing exports would lead to higher gasoline prices. Environmentalists are concerned that exports would lead to more drilling and consumption of polluting fossil fuels. Similarly, government approval for facilities to ship liquefied natural gas was opposed by chemical companies that use the fuel as a raw material, arguing that exports would raise prices at home. As the debate heats up, the industry is finding ways to work around the oil-export ban. Exports to Canada, which are allowed with licenses from the Commerce Department, reached a record 576,000 barrels a daygovernment data show. Companies are also expanding shale processing equipment, such as Kinder Morgan‘s simplified refineries called splitters that process crude just enough to qualify as a product that can be legally exported.

The Reference Shelf

  • Webcast of Senate committee hearing on crude exports.
  • Senator Lisa Murkowski, a ban opponent who is expected to head the energy committee in January, issued a report on the U.S. energy outlook through the end of the decade.
  • Congressional Research Service report on crude oil export licenses.
  • Energy Department data on production and trade.

First Published Feb. 27, 2014

To contact the writer of this QuickTake:

Isaac Arnsdorf in New York at

To contact the editor responsible for this QuickTake:

Jonathan I. Landman at