Don't Count on an Oil Rally If U.S. Crude Export Ban Is Lifted

  • WTI-Brent differential is less than $2, limiting export profit
  • U.S. exported more oil than some OPEC members this year

Reading Into the Oil Rout: Is the Global Glut Growing?

Traders betting that U.S. crude prices will jump above those in the rest of the world if Congress lifts America’s oil-export ban may be disappointed.

QuickTake Crude Clash

Negotiators are inching closer to a deal that would allow unfettered access to the country’s crude for the first time in 40 years. The glut in the U.S. that depressed prices during the height of the shale frenzy spread to the rest of the world this year. That caused global prices to sink, narrowing the discount for U.S. crude and limiting the chances for producers to sell their oil at a better price in the export market.

While lifting the ban would limit the size of the discount for U.S. oil, WTI would have to be at least $4 below Brent for exports to work, depending on the cost of shipping, Energy Aspects analysts wrote in a note on Friday.

West Texas Intermediate crude in Oklahoma narrowed to $1.61 a barrel below Brent oil in Europe Monday, from as wide as $27.88 a barrel in 2011. Light Louisiana Sweet, a similar grade of crude sold on the Gulf Coast, traded at 35 cents a barrel more than Brent. It was $16.58 cheaper than the international benchmark in late 2013.

“We don’t believe at current spreads there is any impact, as exports would not be profitable,” said Amrita Sen, chief oil economist at Energy Aspects Ltd. in London.

The gap has shrunk as companies from TransCanada Corp. to Enterprise Products Partners LP added pipeline capacity from Oklahoma to the Gulf Coast, eliminating a bottleneck in the U.S. Midwest. The current WTI-Brent differential is less than the cost of moving oil on those pipelines.

The U.S. exported a record 586,000 barrels of crude a day in April, more than OPEC members Ecuador and Libya. That dropped to 409,000 in September. Federal law bars companies from sending unrefined crude abroad, with a few exceptions including shipments to Canada.

“There is little urgency or price advantage for US crude producers to export currently,” Morgan Stanley analyst Adam Longson said in a research note. “However, the advantages could be much larger in a couple years’ time as the US resumes growing production.”

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