It's Time to Remove the Prohibition to Export Crude Oil
This opinion piece presents the opinions of the author.
It does not necessarily reflect the views of Rigzone.
The dramatic increase in U.S. oil production has produced tremendous benefits for Americans. The federal government, however, has constrained many of those benefits by limiting the ability to export crude oil.
The law that prohibits the export of crude oil from the U.S. was passed by Congress in the 1970s during a time of crude oil shortages, rising prices and even lines to purchase gasoline. A majority of Congress believed that it was wrong to allow the export of crude oil when there are shortages and lines at gas stations at home.
Since then there has been a dramatic increase in oil production that has created an oversupply of oil in the U.S. Oil production in West and South Texas, and the lack of takeaway infrastructure, is causing an even larger oversupply situation at the lease level.
The backlog of crude has created a pricing differential between West Texas Intermediate (WTI) and other locations where crude oil is sold. For example, in London North Sea Brent crude oil closed at $60.55 per barrel on March 4. On the futures market for 30-day delivery at the New York Mercantile Exchange crude oil closed at $51.33. The posted price for WTI at the lease in West Texas was $47.00, and there are additional deductions for transportation among other things.
In the end it is a balancing problem between the massive growth in production of light sweet crude oil out of the Permian Basin and the Eagle Ford when matched with the Gulf Coast refinery capabilities. Most Gulf Coast refineries are configured for heavier sour crude. They are having problems refining the influx of sweet crude, and they are near their maximum capacity for light, sweet (WTI) and condensate. Yet, these lighter crude oil supplies are growing by the day.
Oil production in the Permian Basin has increased almost one million barrels per day (b/d) in seven years and more than 1.3 million b/d in the Eagle Ford, according to the U.S. Energy Information Administration. In 2008, the Permian Basin produced about 800,000 barrels per day b/d compared to 1.7 million b/d today. The Eagle Ford produced less than 300,000 b/d in 2008, but today it averages about 1.6 million b/d.
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