By BRADLEY OLSON and
ExxonMobil's push to export US oil overseas is facing a new
obstacle: falling gasoline prices.
A flood of new oil from Texas to the Great Plains has swamped
refineries, driving down prices at the pump 10% since March,
while global oil prices have hovered at about $107/bbl. That
suggests the world crude market is having waning influence on
US gasoline, which instead is beginning to track lower-priced
US supplies are having a greater impact because theyre
making up a bigger part of the gasoline market, supplying
about 53% today, compared with 34% less than three years ago.
As cheaper oil translates to cheaper gasoline, Exxon and
ConocoPhillips will have a tougher time convincing
legislators that ending export restrictions that date back to
1970s oil shortages would benefit the nation, said Sandy
Fielden, director of energy analytics at consultant RBN
If more exports are allowed, The most obvious thing
thats going to happen is that crude prices will go up
and so will gasoline, Fielden said.
Investors are betting the trend will continue, and that West
Texas Intermediate, the US benchmark for oil, will drop about
17% by December 2016. A contract for delivery in that month
trades at about $80/bbl, compared with about $97 today.
Lifting strict export limits would halt the decline in US
crude prices while costing motorists as much as $10 billion a
year in higher fuel prices, according to Barclays. Gasoline
prices reached a three-year low last year and should continue
to drop through 2015, according to the US Energy Information
Senator Lisa Murkowski, the top Republican on the Senate
Energy and Natural Resources Committee, has joined Exxon, the
American Petroleum Institute and the US Chamber of Commerce
in calling for an end to crude export restrictions that were
put in place after the Arab oil embargo in 1973 triggered
gasoline shortages in the US.
The reality is the market has moved from an era of
scarcity to an era of abundance -- but were still
saddled with statutes and regulations stuck in a mindset of
scarcity, said Kenneth Cohen, the vice president who
oversees Exxons lobbying efforts, in a December
The debate over exports is splitting the energy industry. Oil
producers such as billionaire Harold Hamms Continental
Resources want leeway to send their crude abroad for higher
prices. Some refiners want US oil to remain landlocked,
offering them a cheaper feedstock
for their plants.
In a strategic sense, the US is not alone in how its policies
over exports. Countries
from Saudi Arabia to Brazil are seeking to boost their refining
billions to create manufacturing jobs or reduce imports, said
Charles Kemp, a senior consultant at Baker &
Advocates of more oil exports have warned that unless the
limits are lifted, the production boom that has boosted US
oil output to the highest level in 25 years will slow.
Opening the spigot of US crude to the world will lower the
trade deficit and boost employment, replacing outdated
regulations that now allow exports of refined products such
as gasoline and diesel but limit crude, Murkowski said in a
Jan. 7 speech.
A central argument for opening exports, made by Murkowski and
ConocoPhillips CEO Ryan Lance, hinges on the contention that
shipping American oil abroad would bring down world prices,
and thus reduce gasoline prices. Thats because imports
of crude from abroad have historically tied US gasoline
markets more closely to the global Brent benchmark price for
Falling gasoline prices, even with export restrictions
remaining in place, are eroding that argument. New supplies
of oil from North Dakota and Texas have outstripped
processing capacity in some refineries, resulting in US crude
selling for about $11/bbl less than global varieties.
Refiners who benefit from the lower costs of crude are
passing about $3/bbl of that discount on to consumers, which
translates into annual savings of more than $9.5 billion last
year and an expected $9.6 billion this year, Barclays analyst
Paul Cheng said in a Jan. 22 note to investors. The ultimate
benefit is even greater as the savings ripple through the US
economy in a multiplier effect, Cheng said.
After a ban on exporting Alaskan crude was lifted in 1996,
pump prices on the West Coast surged to a premium of 15
cents/gal higher than elsewhere, 10 cents more than in 1995,
according to an analysis released by the Center for American
The lower domestic price for oil benefits families,
businesses, and the overall economy, the center said.
The US retail price for regular gasoline fell to $3.279/gal,
according to Heathrow, Florida-based AAA, the nations
largest motoring company. The countrywide average rose to
within a cent and a half of $4 in April 2011.
Prices at the pump in the US have typically tracked closely
with the global Brent oil benchmark in the UKs North
Sea as East Coast refiners used foreign oil priced against
Brent because they couldnt access domestic crude. Europe
an plants also sent gasoline
to New York as US oil production slumped after peaking in
As oil output began rising in 2009, spurred by horizontal
drilling and hydraulic fracturing that unlocked new resources
in dense shale rock, the imports that helped set US prices
began to slow. The US imported an average of 576,000 bpd of
gasoline in 2013, the lowest since 2000, EIA data show.
For most of January, gasoline prices tracked more closely
with cheaper domestic oil than with the Brent price. This
correlation means that gasoline prices have fallen in step
with domestic West Texas Intermediate oil as crude production
boosted supplies, according to data compiled by
The lighter weight oil from shale fields, which has fewer
impurities, tends to yield more gasoline, a factor that could
further boost supply and potentially decrease prices if oil
export restrictions remain in place, said John Auers, a
senior vice president at industry consultant Turner Mason
From a long term fundamental standpoint, gasoline
prices are going to be pretty attractive, Auers said.
Weve seen those high, $5-a-gallon prices and
were not going back to those for any length of