Politicians have stoked fears that lifting a 1970s ban on exporting U.S. crude oil would increase gasoline prices at home. Last week the Government Accountability Office said they are wrong. ADVERTISING Politicians have stoked fears that lifting a 1970s ban
Politicians have stoked fears that lifting a 1970s ban on exporting U.S. crude oil would increase gasoline prices at home. Last week the Government Accountability Office said they are wrong.
U.S. crude oil production is booming. The country is producing nearly 70 percent more crude than it did in 2008. The nation also boasts some of the world’s most advanced refineries. So why not keep all that crude here, refine it in U.S. facilities and sell it to Americans at a discount?
Many U.S. refineries are fitted with expensive upgrades to process heavy, sour crude oil, which has given them a leg up in refining crude from the Middle East and South America. Much of the domestic oil flooding into the U.S. market, on the other hand, is light and sweet. The crude-refinery mismatch in the United States means that drillers are desperate to sell their product to foreign refineries.
Even if the mismatch wasn’t so pronounced, U.S. motorists wouldn’t realize big benefits from keeping crude in the country. Yes, with a glut of supply, domestic crude prices tend to be lower than international benchmarks. But drivers don’t put crude oil in their tanks — they buy gasoline, which more closely tracks international prices. The true beneficiaries are U.S. refiners capable of taking the light, sweet crude. They get to buy crude cheap and sell gasoline at standard rates.
Given this reality, the GAO concluded that removing the ban on U.S. crude oil exports would tend to lower gasoline prices. U.S. drillers would produce more oil if they could sell it at higher international prices. The additional supply would push global crude oil prices down and gasoline prices, including those in the United States, would follow. The difference would probably not be large — the GAO offers a range of 1.5 cents to 13 cents per gallon. Members of the Organization of the Petroleum Exporting Countries might respond by reducing their own production, propping up world oil prices and limiting the effects on gas prices. But even in that circumstance, the U.S. economy would benefit as international customers bought more U.S. crude and the trade deficit decreased.
Environmentalists oppose exports for a different reason: They don’t want to encourage energy companies to drill more. We will be as happy as anyone when the world finally kicks its dependence on fossil fuels. But demanding that global oil markets operate irrationally in the meantime is not a reasonable response for economies that still depend on fuel and must manage a transition to cleaner energy. Instead, policymakers should demand that energy markets operate more rationally — by taxing fossil fuels in proportion to the damage they do to the planet.
