The U.S. has a more than 50 percent chance of lifting the ban on most crude oil exports within the next two years, potentially narrowing the gap between domestic and international oil prices, according to Bank of America Corp.
The collapse in domestic gasoline prices has reduced the political cost of tackling the issue, while the prospect of economic sanctions imposed on Iran being removed while the U.S.’s self-imposed ban remains in place seems “highly incoherent”, the bank said in a report dated Thursday. With the Republican Party now in full control of Congress, any legislation to lift the ban is more likely to be passed, it added.
“Oil is increasingly viewed as a key non-lethal weapon” that can be used to meet U.S. foreign policy objectives, Bank of America analysts including Francisco Blanch said in the report. “The politics of energy exports are finally more aligned with the economics.”
West Texas Intermediate crude, the U.S. benchmark, dropped 46 percent in 2014, the biggest annual decline in six years, amid a surge in domestic production. The country switched from being the world’s largest buyer of foreign oil 10 years ago to the largest contributor to growth in global crude oil supply in the last four years, the bank said.
WTI gained 85 cents to $58.53 a barrel on the New York Mercantile Exchange as of 12:59 p.m. London time. Brent, the equivalent European benchmark, was trading at a $4.77 a barrel premium to WTI on the London-based ICE Futures Europe Exchange.
If unrestricted U.S. crude exports were allowed, overturning a ban that has been in place since 1975, Brent’s premium to WTI could shrink to $3 a barrel by 2017, according to Blanch.
Crude stockpiles in the U.S. are near the highest level since 1930 and almost 100 million barrels above the five-year average for this time of the year, according to the Energy Information Administration. The country is the world’s largest exporter of petroleum products, with gasoline exports of more than 500,000 barrels a day last year, according to Bank of America.
“Key U.S. allies like Poland are heavily reliant on Russia for their crude oil and natural gas imports, so any U.S. government action that could help reduce this dependency could bring about a foreign policy shift,” Blanch said.
The U.S. goal of energy independence is under threat as the collapse in crude prices has led to a 58 percent drop in the number of active drilling rigs in the last six months, Blanch said. Current prices are close to the marginal cost of production, he added.
A bill was introduced May 19 by Senator Heidi Heitkamp in conjunction with Senator Lisa Murkowski with the intention of lifting the domestic crude export ban.