Ending Oil Export Ban Won’t Flood the World: Deutsche

Infrastructure constraints and already-increasing oil supplies in the global market will keep U.S. shale crude from flooding the world should regulators decide to lift an export ban, Deutsche Bank AG said.

If the federal government allows oil to leave U.S. soil, exporters would face the same port and pipeline limitations that Canadian and U.S. Midcontinent producers are dealing with to get their supplies to the Gulf Coast, Deutsche Bank strategist Michael Hsueh said in an e-mailed report today. Domestic refiners are also adjusting their systems to handle more light oil pouring out of shale formations, displacing imports from abroad that U.S. exporters would have to compete with, he said.

Federal legislators are facing increasing pressure to ease the prohibition on most oil exports, enacted in 1975 in response to the Arab oil crisis, as domestic crude production surges to the highest level in at least three decades. Exports of refined products such as gasoline and diesel fuel, which are exempt from the ban, have surged to a seasonal record.

“We would not expect that a lifting of the ban tomorrow would immediately trigger a large volume of oil exports,” Hsueh said in the report. “The most important benefit of a relaxation of export restrictions would not be to release pent-up export supply, but rather ease the introduction of future domestic supply growth.”

U.S. imports of light oil have dropped to 500,000 barrels a day and even a complete elimination of light imports in 2015 won’t entirely offset the growth in domestic production, according to Hsueh’s report. The nation’s refiners would need to see significant discounts for U.S. crude grades or a guarantee that the export ban will never be lifted to make a more material shift in their crude mix, he said.

“Faced with these alternatives,” Hsueh said, “U.S. legislators may well find it more expedient to simply relax export restrictions.

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