Crude oil slipping out of the country

As expected it seems that U.S. crude oil (NYMEX:CLN14) exports are slipping out of the country. The boom in U.S. shale oil production as well as the quality of this light sweet crude has opened the door to a loophole or at least a backdoor approval. The Wall Street Journal reported that "in separate rulings that haven't been announced, the Commerce Department gave Pioneer Natural Resources Co. and Enterprise Products Partners LP permission to ship a type of ultralight oil known as condensate to foreign buyers. The buyers could turn the oil into gasoline, jet fuel and diesel.

The ultra-light oil has created a boom and a quandary for U.S. refineries that have been setup mainly to refine heavier grades of crude. Yet the quality of this ultra-light condensate has led to a glut or a situation where refiners have either mixed it with heavier grades of oil. This means of course there is wasted yield as it would be more efficient to export to refineries that depend on the lighter grades. The Wall Street Journal says that the shipments could begin as soon as August and are likely to be small, people familiar with the matter said. It isn't clear how much oil the two companies are allowed to export under the rulings, which were issued since the start of this year."

This of course explains some of the surprise drops in supply that we have seen in the Gulf Coast. Not only has the market been reporting Canadian crude it is likely that we have been shipping condensate. Yet while the Commerce Department said there has been "no change in policy on crude oil exports" the drops in the Gulf Coast suggest otherwise.

Not that I am criticizing. I believe that exporting light sweet crude that we can't use anyway makes sense not only for our economy but the global economy as well. We will eventually swap this crude for other grades of oil and products but perhaps for other goods and services. We will reduce our trade deficit and work towards a surplus and will have a competitive advantage at the same time as we will dominate both imports and exports. The Wall Street Journal says that "the Commerce Department's Bureau of Industry and Security approved the moves using a process known as a private ruling. For now, the rulings apply narrowly to the two companies, which said they sought permission to export processed condensate from south Texas' Eagle Ford Shale formation. The government's approval is likely to encourage similar requests from other companies, and the Commerce Department is working on industrywide guidelines that could make it even easier for companies to sell U.S. oil abroad.

The Journal says that private rulings by the Commerce Department define some ultralight oil as fuel after it has been minimally processed, making the oil eligible for sale outside the U.S. The Brookings Institution estimates that as much as 700,000 barrels of ultralight oil per day could be exported starting next year. 

Eventually, the exemption could grow to a substantial portion of the three million barrels a day of oil that energy companies are pumping from shale, industry experts say. From 2011 to 2013, U.S. oil output soared by 1.8 million barrels a day, with 96% of new production in the form of light or ultralight oil, according to the Energy Information Administration."

After the news broke crude spiked in part because of the shock of the headline The American Petroleum Institute report  cooled things down when it showed  that U.S. crude inventories  increased by 4 million barrels to 382.6 million barrels.

In Iraq fighting goes on. Syria bombed Sunni extremist targets. The battle for Baiji refinery continues and the Russian Ukraine Cease-fire is falling apart!

Stay tuned!  


Ed Note: Watch Phil Flynn interview Futures' new editor-in-chief Dan Collins about our upcoming 500th issue. He also talks about a special contest for our readers.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at Learn even more on our website at


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