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The US Relaxes Restrictions on Crude Oil Exports

6/30/2014
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This week, the Wall Street Journal reported that the US Commerce Department has issued separate private rulings allowing two Texan companies, Pioneer Natural Resources Co and Enterprise Products Partners LP, to export a type of ultra-light oil known as condensate. Although exports of condensate will not offset the overall increase in US crude oil output, the move gives the industry hope of a further easing of the crude oil export ban.

Under current regulations, companies can only export US refined fuel like gasoline or diesel, but not crude oil. The embargo only excludes Canada. There are also certain exceptions that require a special licence to export crude oil to other countries, but as of 2013 almost all the crude oil exported from the US was destined for Canada. However, under the recent private rulings, condensate can also qualify as a refined product. Therefore, some ultra-light oil could be reclassified as fuel after it has been minimally processed, thus easing the export ban.

The willingness to relax the restrictions was likely prompted by the recent expansion of crude oil production in the US. As of March 2014, crude oil production in the country stood at 8.2 million barrels per day, up from 5.6 million barrels a day three years ago. Most of this expansion can be attributed to soaring light crude oil production. According to US Energy Information Administration estimates, this growth momentum is projected to be maintained in the coming years.

Soaring Light Crude Oil Production

Lightoil

Source: Euromonitor International from the US Energy Information Administration

Light crude oil production has risen largely due to an increase in light tight oil (shale oil) output, which after tripling since 2010 reached three million barrels per day in the second half of 2013. As the supply of oil tapped from shale formations was flooding the market, the prices of such oil started to fall significantly behind other types of oil. The relaxation of the ban will allow US oil companies to seek better prices abroad.

Experts believe small-scale shipments of ultra-light oil could start as soon as August. The amount of exports is not clear, but the CEO of Pioneer Natural Resources Co was cited a few months ago as saying that US wells are currently producing some 800,000 barrels of condensate a day. Although not drastically, WTI oil prices were up on Wednesday.

Condensate exports will not offset the overall increase in US crude oil output. Therefore, the oil industry will continue to pressure US officials to lift the export ban. Experts believe that if the lobbyists succeed in achieving a further relaxation of the restrictions, exports could eventually account for a substantial part of shale oil output.

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