The U.S. administration is not considering a ban on crude oil exports as a means of bringing down retail fuel prices, Reuters has reported, citing an unnamed source familiar with the thinking at the White House.
While the report lacks any further details, it might be an indication that the administration is not in a whatever-it-takes mood, which would be good news for U.S. oil producers and exporters.
It would not, however, be such good news, for traders who are betting there will be a ban. Bloomberg reported earlier this week that some traders are piling up in options contracts that would generate a profit if West Texas Intermediate falls against Brent crude. This is what would likely happen if a ban is instituted on U/S/ exports of crude. Some of the bets, Bloomberg noted, anticipate a gap as deep as $10 per barrel between the U.S. and the international benchmark.
Some Democratic legislators last month urged the administration to ban exports in a bid to control prices at the pump, but now a bipartisan group of congressmen has called on the White House to keep the oil flowing overseas. The group, comprised of eight House Representatives, explained that a ban on crude exports was likely to actually boost international prices further by cutting off U.S. oil from global supply flows.
Instead, the group said, the Biden administration should encourage U.S. oil companies to boost production—something the industry itself has said. Some in the industry have even openly expressed their surprise at why the administration didn’t reach out to them with a request for more oil rather than directing that call at OPEC.
Average gasoline prices across the United States are more than $1 per gallon higher than they were a year ago, but crude oil prices are much higher, too, as demand has rebounded shockingly fast after the end of lockdowns. They are, however, lower than they were a month ago, though not by much, as worry about the latest coronavirus variant weight on benchmarks.
By Irina Slav for Oilprice.com
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Who even cares would be the understatement of all time.
This is a matter for the US Federal Reserve Bank to deal with by tightening liquidity in the market through withdrawing the Quantitative Easing.
Furthermore, a ban will lead to higher crude oil prices in the market. Still, the United States will have to continue importing medium and heavy crudes for its refineries.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London