Fitch: End of U.S. Crude Export Ban Could Spur Investment Shift
CHICAGO -- January 23, 2014
Any move by the Obama administration or Congress to reconsider the 40-year-old
ban on the export of most domestically produced crude oil could boost price
realizations and profits for U.S. exploration and production (E&P) firms. Over
the long term, Fitch believes removal of the crude export ban could further
accelerate the trend of independent E&P firms rebalancing their portfolios
toward North American shale plays, as the economics of onshore U.S. shale
investments become more attractive relative to competing international
The export ban, which dates back to legislation passed by Congress in the
1970s following the OPEC oil embargo, effectively shuts in much of the
lighter-grade crude oil produced in North Dakota's Bakken region and other
U.S. shale resource plays. While certain exceptions are made for crude oil
produced in Alaska and other regions, most of the approximately 8.12 million
barrels per day of domestic crude oil produced in the U.S. must also be sold
within the U.S.
In recent weeks, members of Congress, the secretary of energy and industry
representatives have all suggested that a review of the ban is in order. While
the prospects for congressional action on the issue are, at best, uncertain in
an election year, the Department of Commerce could unilaterally take steps to
ease crude export licensing requirements, without new legislation.
With crude exports largely prohibited, a glut of domestic light crude building
up on the Gulf Coast has widened the spread between West Texas Intermediate
(WTI) and Brent crude over the last three years.
All else being equal, a lifting of the ban would narrow that spread as freer
movement of domestic crude to overseas markets would push WTI prices up and
Brent prices down. This, in turn, should encourage E&P companies to shift more
production to U.S. shale plays as internal rates of return on U.S. investments
would improve. Many large producers, including Marathon Oil Corporation and
Apache Corporation, have already shifted more production onshore, boosting
capex committed to U.S. shale projects.
But the existence of the large WTI/Brent spread, which could widen as domestic
light crude production grows, may keep a lid on price-realization expectations
by E&P firms, potentially limiting new onshore investment flows if the ban
continues. The rapid rise in domestic crude oil production, now expected to
approach 10 million barrels per day by the end of the decade, means that the
export ban's removal could have a meaningful impact on crude export volumes.
On the flip side, U.S. refiners would likely see some margin compression if
the ban ends and Brent and WTI prices converge. Refiners are benefiting from
access to significantly discounted U.S. crude oil, and have sharply boosted
their exports over the last several years, as refined products are not covered
under the export ban. A negative shift in refinery economics resulting from an
end to the export restrictions could lead to some offsetting declines in
refined product exports.
Further analysis of the likely impact of an end to the export ban across
various segments of the U.S. oil and gas industry will be published over
The above article originally appeared as a post on the Fitch Wire credit
market commentary page. The original article can be accessed at
www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
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Mark C. Sadeghian, CFA, +1 312-368-2090
Bill Warlick, +1 312-368-3141
Fitch Ratings, Inc.
70 W. Madison
Chicago, IL 60602
Brian Bertsch, +1 212-908-0549
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