Lifting of Ban Bullish for Crude?

01/13/2014 12:01 am EST

Focus: COMMODITIES

Jim Jubak

Founder and Editor, JubakPicks.com

MoneyShow's Jim Jubak points out that the lifting of a ban from 1975 could give a boost to some domestic oil industry stocks, but not all.

The ban on crude exports from the United States, a relic from 1975 and the Arab Oil Embargo, looks like it's going to die in 2014. What we had on January 7 was Lisa Murkowski, the senator from Alaska, the ranking republican on the Senate Energy Committee, coming out and saying that she'd like to see this restriction lifted.

Basically, what we put in place back then was a ban that said, “Hey, the customer is so worried about dependency on Arab oil, we're going to, essentially, ban all exports of crude from the United States and keep it all for ourselves.”

Well, things have changed a lot. We've had about a 60% increase in crude production from the United States since a low in 2008, so now the US, for the moment at least, is swimming in oil and a lot of these are very light sweet grades that aren't easily refined by all the existing refineries, so it would be great to export these, and there's a pretty big price differential between, say, Louisiana Sweet Crude at about $100 a barrel and the heavier benchmark for Brent, the international benchmark at about 107, so, if you take that differential oil produced in the United States is really getting less per barrel than they could get on the global market, except that it's illegal to export. Murkowski's coming out and saying this, “I think it's just increased pressure on the Obama Administration to get rid of this ban.” What she said, which is absolutely right, is that the Obama Administration could act unilaterally, doesn't need Congress. It could declare exports to be international interest and then start giving out licenses. It could basically decide that there is no market for this oil and then start giving out licenses. What she said was, “Hey, you guys, if you do that, I won't move legislation, but if you don't, I will move legislation."

The battle right now is, sort of, between people who are sort of proponents of the oil industry point of view (because the oil producers would like to sell this oil at a higher price), and people who are proponents of the oil consumer point of view (because they're worried that exporting more US crude would drive up the price of US oil domestically). I don't think there's a very big difference here. I think that, given what we know of lobbying clout, the oil producers tend to win battles like these, so I think, sometime in 2014 we're going to see the Obama Administration basically decide to grant many more export licenses. They've granted a few. You can see the momentum building, but they've been all in Canada because that's got an exception in the law, so this would be export licenses to send crude to other places, other markets, and basically take US oil back into the global market.

The effects of this, I think, one is good for US domestic producers of oil from places like the Balkan or the Permian Basin, so companies better producing in those areas would see, get more for their oil. I think you can actually, sort of, see a few more pipelines getting built as this export market develops. There's some downside for US oil refineries, because they've been using cheaper US oil to increase their profit margins and then exporting the refined products because that's perfectly legal. The legislation, which is really, really nuts, makes a differentiation between; you can't export crude, but you can export refined crude products, so those refineries would take some hits, but it's not clear how big that would be or how important it would be, because, as I say, a lot of these grades are so light and so sweet that the existing refineries in the US aren't able to do—not all of them can use those grades. Those are the winners and losers. I think this ban ends in 2014, and then, just watch to see US oil exports increase and the US trade deficit actually shrink even more than it did in December.

This is Jim Jubak for the MoneyShow.com Video Network.

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