CRS has published a memo (May 29, 2015) on oil exports demonstrating the principle that if you ask the wrong question, you may not get the most helpful answer. The CRS memo looks at ability of Eastern Europe to absorb US crude oil, if policy did not prohibit this. But the real question is how might Eastern Europe be impacted if US oil exports are allowed – after all, there is a global market for oil so it may not matter WHERE the US oil is actually consumed. Instead, the impacts for Europe could be transmitted through the global market for oil.
While the CRS memo acknowledges that lifting the ban on U.S. crude oil exports would tend to reduce the global price of oil, it seems to overlook the potential beneficial impact on Eastern European countries and refiners. CRS notes that there are various reasons why lifting the U.S. crude oil ban may not result in sales to Eastern European refiners including the fact that their refineries may not be well suited to process U.S. light sweet crude and lack of infrastructure to get it to them. However, CRS seems unclear about the fact that if U.S. crude oil is exported anywhere in the world it would tend to put downward pressure on the Brent price and also the discounted price that Russia gets for its oil. A lower global crude oil price would benefit Eastern European countries as well as those in Western Europe; this point could have been given more emphasis in the CRS report. In addition, our recent experience with potential LNG exports from the U.S. has impacted Russian-European contract prices for LNG. There have been quite a few news items about European firms getting favorable deals even though we are not yet exporting much. The current trend in U.S. crude production is already putting downward pressure on global prices (for examples see the first reason mentioned for lower prices on page 156 here).
Once we start exporting crude, that will also mean more production .It does not matter whose market share we are taking away. All importers should benefit. From a geopolitical perspective, it seems that U.S. policy makers would think that decreased Russian oil revenues would be a useful outcome.
The CRS memo also notes that ´If U.S. crude oil export restrictions were removed, there is no way to accurately predict the actual level of exports that would occur”. Is this a criticism of lifting the ban? CRS goes on to say, “ If the level of U.S. exports is small relative to the market, it might be difficult to isolate these price effects amid the normal volatility of oil prices.” Again, what is CRS’s point? Are they suggesting that it’s critical to understand exactly what the price impact of lifting the ban would be? That seems unrealistic and unnecessary. The important thing is to embrace the principle of free trade and let markets sort out the price impacts. Lifting the ban would provide substantial economic benefits to the U.S. A study released last month by the ACCF summarizes several analyses of the economic impacts on the U.S. of lifting the ban; all show positive impacts on GDP and U.S. job growth.
