Petroleum & Other Liquids

This Week in Petroleum

Release date: September 2, 2015  |  Next release date: September 10, 2015

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Effects of removing crude export restrictions depend on price and resource assumptions

The recent rise in domestic crude oil production from 5.4 million barrels per day (b/d) in 2009 to 8.7 million b/d in 2014 and the prospect of continued supply growth have sparked interest in the question of how a change in current policies, which restrict but do not ban exports of crude oil produced in the United States, might affect markets for both crude oil and petroleum products over the next decade.

A new study by the U.S. Energy Information Administration (EIA) on the potential implications of removing restrictions on crude oil exports finds that effects on domestic crude oil production are key to determining the other effects of the policy change. Gasoline prices would be either unchanged or slightly reduced. The report also examines the implications of removing current restrictions on the price of domestic and global marker crude oil streams, domestic refining activity, and trade in crude oil and petroleum products.

The analysis, which builds on and extends previous studies and activities related to the implications of growing domestic crude production that EIA has undertaken since May 2014, uses cases based on EIA’s Annual Energy Outlook 2015 (AEO2015) that incorporate a range of assumptions regarding domestic resource availability and world oil prices. Each of the four cases is run in a baseline version, reflecting current policies that restrict, but do not entirely ban, crude oil exports, and in an alternative version without any crude oil export restrictions.

The modeling finds no difference between projections with and without current export restrictions in two analysis cases in which projected production with current export restrictions remains below 10.6 million b/d over the next decade. However, in two other cases where domestic production in 2025 ranges between 11.7 million b/d and 13.6 million b/d, projections without export restrictions show increased domestic production, higher crude exports, reduced product exports, and slightly lower gasoline prices to U.S. consumers compared with cases that maintain current crude oil export restrictions.

Domestic crude production: The variation in projected production levels across the four baseline cases used in the report reflects differences in the characterization of oil resources and technology as well as future crude oil prices. There is a considerable spread in projected domestic production across these cases (Figure 1). The left-hand panel of Figure 1 shows the differing levels of crude production across the four baseline cases. The right-hand panel shows that removal of current crude export restrictions does not lead to additional production in the Reference and Low Oil Price cases, where production remains below 10.6 million b/d through 2025. However, the removal of crude export restrictions leads to additional production of between 0.4 million b/d and 0.5 million b/d by 2025 in the High Oil and Gas Resource (HOGR) and High Oil and Gas Resource / Low Oil Price (HOGR/LP) cases. These two cases have significantly higher baseline production because of more optimistic resource and technology assumptions.

U.S. gasoline prices: Petroleum product prices in the United States, including gasoline prices, would be either unchanged or slightly reduced by the removal of current restrictions on crude oil exports. As shown in a previous EIA report, petroleum product prices throughout the United States have a much stronger relationship to North Sea Brent, an international crude oil benchmark price, than to West Texas Intermediate (WTI), a domestic benchmark price.

In the high production cases considered in this study (HOGR and HOGR/LP), the elimination of current restrictions on crude oil exports narrows the Brent-WTI spread by raising the WTI price. As domestic producers respond to the higher WTI price with higher production, the global supply/demand balance becomes looser (more supply in relation to demand) unless increased domestic production is fully offset by production cuts elsewhere. The looser balance implies lower Brent prices, which in turn results in lower petroleum product prices for U.S. consumers.

Trade in crude oil and petroleum products: Combined net exports of crude oil and petroleum products from the United States are generally higher in cases with higher levels of U.S. crude oil production regardless of U.S. crude oil export policies. However, crude oil export policies materially affect the mix of crude oil and petroleum product exports, particularly in the HOGR and HOGR/LP cases, which have high levels of domestic production. Crude oil exports tend to represent a larger share of combined crude oil and petroleum product exports in cases in which crude oil exports are unrestricted, as shown in Figure 2. Also, in cases where the level of domestic crude production increases with the removal of crude oil export restrictions, total combined crude and product exports are higher than in similar cases with current crude oil export restrictions in place.

Unrestricted exports of U.S. crude oil would leave global crude prices either unchanged or falling slightly compared to parallel cases that maintain current restrictions on crude oil exports. Other factors affecting global supply and demand will largely determine whether global crude prices remain close to their current level, as in EIA’s Low Price case, or rise along a path closer to the Reference case trajectory. Global price drivers, as well as resource and technology outcomes, will affect growth in U.S. crude oil production regardless of decisions about future U.S. crude oil export policies.

EIA’s full report provides additional insight into implications for domestic refinery capacity and operations as well as upstream producers. It also identifies key factors and assumptions that affect the results of EIA’s study and other work on this topic, including the characterization of existing crude oil export policies, the extent of continued opportunities to substitute domestically produced crude for imported crude used in U.S. refineries, the extent of the global production response, if any, to increased domestic production, and the possibilities for expanding U.S. processing capacity if domestic production turns out to be high and current crude export restrictions remain in place.

Additional analysis is provided in the full report, Effects of Removing Restrictions on U.S. Crude Oil Exports.

U.S. average gasoline and diesel fuel prices decrease

The U.S. average retail price of regular gasoline decreased 13 cents from last week to $2.51 per gallon on August 31, 2015, 95 cents per gallon less than at the same time last year. The Midwest price showed the largest decline, down 20 cents to $2.47 per gallon. The West Coast price decreased 12 cents per gallon to $3.16 per gallon. The Gulf Coast and East Coast prices were both down nine cents per gallon, to $2.20 per gallon and $2.34 per gallon, respectively. The Rocky Mountain price was down five cents to $2.77 per gallon.

The U.S. average diesel fuel price fell five cents from the previous week to $2.51 per gallon, down $1.30 per gallon from the same time last year. The East Coast price decreased six cents to $2.59 per gallon. The Midwest, Gulf Coast, and West Coast prices each were down four cents, to $2.44 per gallon, $2.38 per gallon, and $2.72 per gallon, respectively. The Rocky Mountain price declined three cents to $2.56 per gallon.

Propane inventories gain

U.S. propane stocks increased by 0.6 million barrels last week to 96.3 million barrels as of August 28, 2015, 20.2 million barrels (26.6%) higher than a year ago. Midwest inventories increased by 0.4 million barrels and East Coast inventories increased by 0.2 million barrels. Rocky Mountain/West Coast inventories and Gulf Coast inventories both remained unchanged. Propylene non-fuel-use inventories represented 4.8% of total propane inventories.

For questions about This Week in Petroleum, contact the Petroleum Markets Team at 202-586-4522.

Tags: Brent, crude oil, exports, gasoline, imports, liquid fuels, oil prices, oil/petroleum, refining & processing, retail prices, WTI (West Texas Intermediate)

Retail prices (dollars per gallon)

Retail price graphs
  Retail prices Change from last
  08/31/15 Week Year
Gasoline 2.510 -0.127 -0.949
Diesel 2.514 -0.047 -1.300

Futures prices (dollars per gallon*)

Futures price graphs
  Futures prices Change from last
  08/28/15 Week Year
Crude oil 45.22 4.77 -50.74
Gasoline 1.522 -0.023 -1.261
Heating oil 1.576 0.114 -1.281
*Note: Crude oil price in dollars per barrel.

Stocks (million barrels)

Stock price graphs
  Stocks Change from last
  08/28/15 Week Year
Crude oil 455.4 4.7 95.9
Gasoline 214.2 -0.3 4.2
Distillate 150.0 0.1 26.6
Propane 96.344 0.620 20.220