It is the time of year for never-ending holiday cocktail parties and forced conversations. But this year one topic is sure to provide common ground: cheap gasoline at the pump. Is there more universally well-received news in the United States than gas prices in free-fall? For those heading out on holiday road trips, the elation is palpable. But alongside discussions of the downward price spiral and economic debates over stimulus and long-term impacts, one issue should continue to receive attention in 2015: Lifting the ban on crude oil exports from the United States.
For almost 40 years, oil producers in the United States have been effectively banned from exporting crude oil. The policy, enacted in 1975, came in response to the Arab oil embargo and was aimed at reducing the United States' vulnerability to the volatility of the international oil market and intended to keep crude oil at home for domestic consumption.
It bears mentioning that 1975 was also the last time that U.S. oil reserves surpassed 36 billion barrels. And today's reserves look set to continue rising, albeit at a slower pace.
There are minor exceptions to the current ban on crude exports, but they only account for small amounts of oil. But against the backdrop of the U.S. energy revolution and booming shale oil production, there is a strong impetus to lift the ban, particularly if the U.S. wants to convince the world that it truly supports free trade in energy. Indeed, recent exports of condensates point to the reality that companies will find ways to move the U.S. energy bonanza to markets outside the U.S.
Those efforts should be allowed and supported, not made the exception to the international energy trade rule.
U.S. Secretary of Energy Ernest Moniz spoke aptly when he noted that the energy world we live in today has changed dramatically since the ban was imposed and thus a review is in order.
In the last several weeks, our energy world has been even further shaken up. The price of crude has dropped more than 45 percent since summer, with Brent around $60 a barrel and the U.S. benchmark — West Texas Intermediate — below $60 to about $56. Some economists fear prices could drop below $50.
The response from Saudi Arabia and the enormity of the decision at the Nov. 27 OPEC meeting that the cartel will not cut production underscores just how much the world has changed since the days of massive Fords and Chevys in gas lines with sideburn-festooned drivers simmering behind the wheel.
And again stressing Secretary Moniz's point, OPEC's decision was seen by many as an illustration of the cartel's waning influence. Others argued it amounted to a “stealth attack” on nations such as Russia and Venezuela, as well as unconventional producers in North Dakota and Texas.
Beyond the advances of time, the ban has done little to change the cyclical and volatile nature of oil prices. Indeed, the recent slump in oil prices and corresponding drop at the pump for motorists emphasizes that point.
Opinions differ as to the outlook for the price of oil as we bid adieu to 2014. Yet it is unlikely there will be a significant rise in the short term without a drop in output from the world's largest producers or a rise in global demand.
In the short term, lower prices are providing some relief for consumers, particularly in the U.S.
The longer term economic impacts will depend on several factors, most of which are difficult to predict, including how far prices may yet fall, how long they take to stabilize, and at what price point. There is no doubt this final figure will be lower than what we have seen in the last several years. As the U.S. is not only the world's largest oil consumer but also one of the largest producers, the impact on supply, jobs and the economies of producing states could be significant.
But instead of kicking the export ban can down the road, all of these factors should further support efforts to lift the anachronistic ban on crude oil exports from the U.S.
There is no better time to contemplate a major policy overhaul such as lifting the crude oil export ban than as we pour egg nog, sing “Auld Lang Syne” and consider what the New Year has in store.
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