LL EXCLUSIVE: What lifting the oil export ban will do to prices

By Tyson Fisher, Land Line staff writer | 12/18/2015

In response to oil prices falling to levels that have not been seen since 2009, Congress has lifted the 40-year-old ban on U.S. oil exports. Many experts believe this is too little, too late. What’s in store for oil prices in the near future? Land Line connected with oil expert Tom Kloza, global head of energy analysis at Oil Price Information Service, to get some insight on the state of oil and the stability of fuel prices.

In June 2014, West Texas Intermediate (WTI) – used as the U.S. benchmark for oil pricing – was priced at more than $107. As of press time, WTI was trading as low as $34.39. Prices have not dipped below $35 since 2009. Between 2009 and the present, oil reached as high as $113 in April 2011.

Diesel prices have reflected a similar path. Last year, averages diesel prices nationwide reached $4/gallon. Both TruckMiles.com and AAA data show that average diesel prices have been below $3 since January. As of Dec. 18, average diesel prices were hovering around $2.30, with all 48 states in the contiguous U.S. below $3 since the beginning of December.

On Dec. 18, Congress passed an appropriations bill that eliminated a section in the Energy Policy and Conservation Act (EPCA) of 1975 that banned the export of U.S. crude oil. Gerald Ford signed EPCA in response to the 1973 oil crisis. In the fall of 1973, the Organization of Arab Petroleum Exporting Countries established an oil embargo after the United States’ supplied Israel with arms in the 1973 Yom Kippur War.

As a result of the embargo, fuel prices doubled because a shortage was inevitable. Trucking companies were shut down in numbers that have not been experienced since. The Owner-Operator Independent Drivers Association was founded during that time of crisis to represent independent truckers in Washington, D.C.

EPCA established petroleum reserves and banned oil exports in an attempt to maintain a healthy supply of energy regardless of international activity.

Future oil prices
As the global oil supply glut continues, prices are nearing levels that were last indexed a decade ago. With the threat of an embargo in the past, Congress lifted the export ban as a possible solution to falling prices. Will it work?

“This would have had incredible consequences two to four years ago, but not now,” Kloza told Land Line. “The decline in oil prices has compressed numbers so that there is relatively no difference between the price of light sweet crude in North America, Europe or Asia.”

In the short term, Kloza does not predict we will see too many effects of the lifted ban. He notes that there will likely be no change in exports until there is a significant increase in prices. Most people do not think that price hike will occur until 2017 and as late as 2020.

Kloza points out that many factors will keep oil prices low in 2016. They include a soaring dollar, slow economic growth, and Iran continuing to pump out an additional 250,000-500,000 barrels per day. How close are oil prices to bottoming out?

“I would say that we’re in the last few innings of the fall, but despite my best instincts we may test some numbers last witnessed in 2001-2002,” Kloza said.

Prices hit below $20 in late-2001 into early-2002, reaching as low as $17.50 per barrel. More likely, Kloza predicts that oil prices will test the December 2008 financial crash low of $32.40. Kloza believes that oil will hover above that line and up to $55 for most of 2016. As of press time, WTI was trading just $3.11 higher the financial crash low and got as close as $2.

Future diesel prices
What does this mean for diesel prices? Short answer: not much.

“No impact on gasoline prices for the foreseeable future, and no impact on diesel prices,” Kloza said. “All of the studies that point to savings or cost tend to be funded by special interests so be careful.”

Kloza explained that U.S. shale production would be resurrected if oil were to reach around $75, with some of that oil being exported.

“So theoretically, the U.S. wouldn’t be the recipient of the large discounts on fuels that we enjoyed versus other continents after the Arab Spring and before the great oil price plunge last summer,” Kloza said.

Fuel prices for 2016 are still expected to be cheap, especially for diesel, jet fuel and heating oil. Gasoline prices are likely to reflect last year’s numbers, where they ranged $2.02-$2.70.

“My guess at the moment is that we’ll look for $2.30-$2.40 annual gasoline average and a very similar number for diesel,” Kloza predicted. “Our diesel forecast puts us well below EIA’s predictions.”

Currently, the U.S. Energy Information Administration has average gasoline prices indexed at $2.037 and diesel at $2.338.

On Friday, Missouri was the first state this year to hit average prices below $2, according to TruckMiles.com.

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