Monday, October 19, 2015

Desperate hopes. Opening oil up to export

Many people are likely not aware that, with certain limited exceptions, oil produced in the United States may not be exported outside of North America.  Refined products, like gasoline or diesel fuel, may be. But crude oil may not be.

This came about as a result of the oil crisis of the early 1970s, following the 1973 oil embargo, when many Americans realized that for the first time a country that had been an oil exporter no longer was.  The thinking behind the law is that keeping petroleum oil within the country would guaranty that said oil would be produced at a lower price for the US market.

The thinking on that bill was frankly not all that well thought out. As oil is heavy and has to be transported anyhow, it was always going to be cheaper to refine the oil in the US, rather than export it overseas for refining. That's the same reason that oil products in Saudi Arabia are ridiculously cheap. They have a lot of it right there.  So the bill likely did nothing, but it wasn't harmful either.

For the same reason, the current bill that proposes to lift the export ban, which the President has said he will veto, won't do anything either.  US oil isn't going to suddenly be shipped to Europe or Asia for refining.

Indeed, if we had that much of it, it'd actually drop the price of oil further, as right now we remain an oil importing nation. 

But the logic behind the proposal is interesting.  It's actually claimed it will keep gasoline low at the pumps while boosting domestic production.

No it won't.  The price at the pumps is determined by the cost of the supply, and production is likewise determined by that. At the current prices, very little new U.S. production will be coming on line or explored for.  Simple supply and demand.

It wouldn't hurt anything either, however.  Being a major consumer with a ready market, the oil will be produced here and solder here anyhow.  It's interesting, however, how an idea like this gains currency when the domestic industry is in a slump for reasons beyond our control.

For a little added prospective on this, the U.S. became an oil importing nation in 1948.  Almost immediately after World War Two.  That was coincident with a big boom in our economy, and the dawn of the big car era.

No comments: