Cheaper gasoline hurts Exxon plea for U.S. crude exports

Favoring Refiners

In a strategic sense, the U.S. is not alone in how its policies prioritize refining over exports. Countries from Saudi Arabia to Brazil are seeking to boost their refining capacity, spending billions to create manufacturing jobs or reduce imports, said Charles Kemp, a senior consultant at Baker & O’Brien Inc.

Advocates of more oil exports have warned that unless the limits are lifted, the production boom that has boosted U.S. oil output to the highest level in 25 years will slow. Opening the spigot of U.S. crude to the world will lower the trade deficit and boost employment, replacing outdated regulations that now allow exports of refined products such as gasoline and diesel but limit crude, Murkowski said in a Jan. 7 speech.

A central argument for opening exports, made by Murkowski and ConocoPhillips Chairman and Chief Executive Officer Ryan Lance, hinges on the contention that shipping American oil abroad would bring down world prices, and thus reduce gasoline prices. That’s because imports of crude from abroad have historically tied U.S. gasoline markets more closely to the global Brent benchmark price for crude.

Crude Discounts

Falling gasoline prices, even with export restrictions remaining in place, are eroding that argument. New supplies of oil from North Dakota and Texas have outstripped processing capacity in some refineries, resulting in U.S. crude selling for about $11 a barrel less than global varieties.

Refiners who benefit from the lower costs of crude are passing about $3 a barrel of that discount on to consumers, which translates into annual savings of more than $9.5 billion last year and an expected $9.6 billion this year, Barclays analyst Paul Cheng said in a Jan. 22 note to investors. The ultimate benefit is even greater as the savings ripple through the U.S. economy in a multiplier effect, Cheng said.

Energy Security

“Moving U.S. oil away from the mainland will raise the price at the pump for consumers,” said Jamie Court, president of Consumer Watchdog, a California-based advocacy organization that has faulted oil companies for high gasoline prices in the past. “This is exactly the wrong time to change the formula by which Americans maintain their energy security. We don’t want to go back to where we were in terms of scarcity.”

The U.S. retail price for regular gasoline fell to $3.279 a gallon yesterday, according to Heathrow, Florida-based AAA, the nation’s largest motoring company. The countrywide average rose to within a cent and a half of $4 in April 2011.

Prices at the pump in the U.S. have typically tracked closely with the global Brent oil benchmark in the U.K.’s North Sea as East Coast refiners used foreign oil priced against Brent because they couldn’t access domestic crude. European plants also sent gasoline to New York as U.S. oil production slumped after peaking in 1970.

As oil output began rising in 2009, spurred by horizontal drilling and hydraulic fracturing that unlocked new resources in dense shale rock, the imports that helped set U.S. prices began to slow. The U.S. imported an average of 576,000 barrels of gasoline a day in 2013, the lowest since 2000, EIA data show.

Price Correlations

For most of January, gasoline prices tracked more closely with cheaper domestic oil than with the Brent price. This correlation means that gasoline prices have fallen in step with domestic West Texas Intermediate oil as crude production boosted supplies, according to data compiled by Bloomberg.

The lighter weight oil from shale fields, which has fewer impurities, tends to yield more gasoline, a factor that could further boost supply and potentially decrease prices if oil export restrictions remain in place, John Auers, a senior vice president at industry consultant Turner Mason & Co.

“From a long term fundamental standpoint, gasoline prices are going to be pretty attractive,” Auers said. “We’ve seen those high, $5-a-gallon prices and we’re not going back to those for any length of time.”

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