The U.S. Energy Information Administration (EIA) released its report on the impact of lifting the current ban on exporting U.S. crude. The report has a little something for both sides of the argument.

For those who support lifting the ban on crude, the EIA reports that if the price spread between West Texas Intermediate (WTI) and Brent crudes grows to exceed $6 to $8 a barrel, elimination of the ban on U.S. exports would result in higher wellhead prices for crude, encouraging more production. At the same time, prices for refined products, including gasoline prices, “would be either unchanged or slightly reduced by the removal of current restrictions on crude oil exports.” So, what’s not to like here?

U.S. refiners have been feasting on the low prices for crude and the price differential between WTI and Brent. Their margins are likely to shrink if the export ban is lifted, especially if production rises. They are not happy with the EIA report.

More generally, the EIA noted:

While removing restrictions on U.S. crude oil exports either leaves global prices unchanged or lowers them modestly, global price drivers unrelated to U.S. crude oil export policy will affect growth in U.S. crude oil production and exports of crude oil and products whether or not current export restrictions are removed.

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The EIA considered four scenarios in its report and readers tend to pick the one that best reflects their preconceptions. In the reference case, U.S. crude production rises to 10.28 million barrels a day in 2025 regardless of whether or not the restrictions are lifted. Crude prices show little difference (around $90 a barrel for Brent) and the spread between WTI and Brent remains around $6. The projected price of gasoline is essentially the same as well, at around $2.90 a gallon, regardless of whether the export ban is lifted.

In the low price (LP) scenario, U.S. production in 2025 remains equal to current production of about 9.5 million barrels a day whether or not the export ban is lifted. The price of crude is projected to be around $63 a barrel for Brent regardless of a ban, and the WTI discount is around $5.50 a barrel. Gasoline prices are estimated at $2.37 a gallon, again with or without a ban.

Where lifting the ban begins to make a difference is in the high oil and gas resource (HOGR) scenario. Lifting the ban in this case increases daily U.S. production by about 470,000 barrels a day to a total of 14.10 million barrels. If the ban remains in place, a barrel of Brent will cost about $81.40, nearly a dollar a barrel more than if the ban were lifted and the Brent-WTI spread drops by nearly $7, from $15 a barrel to about $8.20 a barrel. A gallon of gasoline costs about $2.65 in this scenario, regardless of whether the ban is maintained.

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The high-resource, low-price scenario (HOGR/LP) lowers total U.S. crude production to around 12.1 million barrels a day if the export ban is lifted, which is about 380,000 barrels a day more than if the ban remains in place. Brent crude would cost around $55.78 a barrel if the ban is lifted, about $0.50 a barrel less than if the ban is left in place. The price spread between Brent and WTI drops to around $8 a barrel if the ban is lifted, compared with a differential of $14 a barrel if the ban remains in place. Gasoline would cost about $2.20 a gallon regardless.

One possible conclusion from the EIA report is that no matter whether the export ban is lifted, the price of gasoline is not much affected. Here is the EIA’s observation:

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 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.

In other words, there are too many moving parts in the oil market for any action by the United States to lift its export ban to have much lasting impact. But that is not what we will be hearing from the players with skin in the game.

The full EIA report is available here.

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