Finally the cat is out of the bag and USA has lifted the
forty odd years exports ban at a time when oil prices are in mid 30s/bbl and
national average gasoline prices are around $1.85/gallon. It is always good to
allow free movements of goods & services (oil and gas) based on competitive
advantage. The question though is what benefits US oil producers/exporters that
will derive the regime of already glutted global market and lower oil prices?
The lifting of US oil exports may have reduced the domestic inventories but
given the weak global oil demand, reduction in US inventories will add
inventories somewhere else around the world. Why? Given the weak global oil
demand and OPEC is quite adamant cutting down their production in favor of
maintaining market share. While other major non-OPEC producers like Russia is
also reluctant to cut down its production for its own economic reasons. On top
of that, producers are also allowing lavish discount to sell their produce.
That is, at the end of the day global inventories may further increase or at
the most more or less remain the same just shifting from one region to another.
Does lowering of US domestic inventories encourage shale oil producers or
remain constraint with their respective break-even prices? Are we expecting a
war of market share – all major producers are reluctant to cut down production.
Will lower oil prices extended over a period of time discourage exploration
activities as well as scale back booming renewable industry, and compromising
our set climate change goals? As far as renewable energy is concern, it
smartly address the issues by extending and then phasing down wind and
solar-tax credits; reauthorizing for three years a conservation fund. A win-win
situation for both Republican and Democrats.
The bill also includes a provision aimed at addressing
politicians’ concerns about high gasoline prices. It enables the president to
restrict oil exports in certain scenarios for up to one year, including in the
case of a supply shortage or if oil prices are significantly higher than global
levels. That is US exports is tied up with two strings: 1) he or she
declares a national emergency, or 2) declares that the crude exports are
raising US oil prices or causing a domestic oil shortage. With the given
conditions, it means that the US policy makers are quite aware of the possible
future scenarios and does not allow open ended exports policy. That is, current
lower oil prices and US higher oil production may not be sustainable over an
extended period of time and therefore, a situation may arise where policy needs
to automatically address these issues to avoid hardship to domestic consumers.
The question is yet to see how the American public opinion changes when oil
prices once again increased to over $100/bbl – increasing national average of
gasoline to over $3.50/gallon (for example)? How and who will
determine what percentage increase in domestic prices is due to exports of
crude and what percentage due to market fundamentals? Or what would
be the minimum threshold oil prices when the President of the United States
will declare and stop exports of crude oil, especially when oil prices are so
volatile. It cannot switch off/on with the changes in situation on
day to day basis. I am pretty sure these issues must have been debated before
and devised some predetermined mechanism.
