Is the White House moving closer to lifting ban on crude exports?

Mexican flag
Source: DollarPhotoClub

For over 40 years there has been a ban in place preventing the export of U.S. oil, with a few exceptions for Canada and Mexico. Now however, it seems the U.S. government is planning to give the go-ahead to the limited sale of light oil to Mexico.

Speaking to Reuters, a Department of Commerce official said that the administration is “acting favorably on a number of applications” that are hoping to swap light U.S. oil for heavier Mexican oil.

Mexico is looking to obtain higher-quality light shale oil for its aging refineries, whilst the heavier Mexican oil works well with American refineries equipped to handle that type of crude. Whilst the exact amount allowed to be exported under these licenses has yet to be revealed, earlier this year Mexican state-owned Pemex applied for around 100,000 barrels per day.

The licenses, which are valid for one year, are expected to be finalised by the end of August. Under the licenses, companies trading with Mexico will have to show that the volume of oil being sold is the same as that being bought and the oil exchanged must be refined at its destination.

The move toward freeing up trade will no doubt be welcomed by the industry, particularly those drillers in south Texas who produce lighter forms of oil and who have been faced with a glut amid the low prices.

Some believe it signals the Obama administration’s intent to move forward efforts to repeal the ban on exports, which has been in place since the 1970s. However, experts said the move did not indicate a desire to stretch the existing laws.

The director of Columbia University’s Center on Global Energy Policy, Jason Bordoff, said “Today’s announcement approving requests for oil swaps with Mexico, and rejecting applications for all other destinations, reflects a straightforward reading of Commerce Department regulations and should not be interpreted as a policy shift toward greater export liberalization”

Repealing the ban would deal a blow to refiners who have benefited from the abundance of cheap domestic oil that is not available to overseas competitors and some critics fear that it would also lead to a rise in gasoline prices.

Speaking at EnerCom’s The Oil & Gas Conference last week, Jeb Armstrong, Vice President Energy Research, Marwood Group said the group did not beleive that ban would be lifted any time soon, citing three reasons. “First a change will require an act of Congress to make it happen. Second, concerns about the effect on U.S. gasoline and diesel prices linger in the minds of many public officials. And third, there appears to be pretty substantial opposition from within the energy industry”

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