AP explains: Why US will lift restrictions on oil exports

By: 9 years ago

In this July 21, 2015, file photo, an oil tanker passes a fisherman as it enters a channel near Port Aransas, Texas, heading for the Port of Corpus Christi. The U.S., seemingly awash in crude oil after an energy boom sent thousands of workers scurrying to the plains of Texas and North Dakota, will begin exporting oil for the first time since the 1973 oil embargo. AP File Photo

NEW YORK, United States—The U.S. could soon end restrictions on oil exports put in place in the mid-1970s. The lifting of the embargo is part of a spending deal expected to be pushed through the House and Senate by the end of the week. Here are the reasons why the ban was in place, why it is now being lifted and how consumers and businesses will be affected.

Gas lines

Of all the bad memories seared into the American consciousness from the 1970s, never-ending lines at the gas pump tops the list for many people. The Organization of Petroleum Exporting Countries put into place an oil embargo after the U.S. sided with Israel in the Yom Kippur War and the price of oil spiked from $3 to $12. A ban on oil exports was put in place in December 1975, with some exceptions. Companies were allowed to export oil to some countries with special approval, and exports to Canada have increased in recent years.

Production reduction

The country’s oil supply problem was made more precarious when domestic production began a long decline in the 1970s as oil fields matured. Even with a temporary surge in production from Alaska in the 1980s, the U.S. was forced to rely more and more on imports. U.S. production, which had reached almost 10 million barrels per day in the early 1970s, was halved by 2008.

So what’s changed?

Technology. U.S. energy companies have developed new techniques that have dramatically increased oil production from fields once thought to be virtually empty or unreachable. U.S. oil production rose from 5 million barrels a day in 2008 to more than 9 million barrels a day this year, increasing global supply faster than demand. This week, crude prices fell below $35 per barrel, down from more than $100 per barrel in June of last year.

The price is right

Allowing U.S. oil to compete in overseas markets should help lower the price of international oils, as measured by the price of Brent crude. U.S. refiners still import a large amount of foreign oil to produce gasoline and other fuels, so lower prices for international oil should translate into lower prices at the gas pump. Right now, thanks to low oil prices, many U.S. consumers are paying around $2 on average for a gallon of gas.

Winners and losers

Big oil companies such as Exxon Mobil and smaller ones such as Continental Resources have been the biggest proponents of ending the ban. They want to sell oil produced in the U.S. in as many markets as possible, particularly those where they might fetch a higher price. U.S. oil is of a lighter variety, a type that European refiners, for example, can more easily turn into diesel fuel.

The economic benefits could be very broad. Economists say exports could help the economy by reducing fuel prices—there are a lot of U.S. industries for which energy is a huge cost, from agriculture, to airlines, to manufacturing. Exports should also encourage investment in oil and gas production and transport and create jobs.

Still, environmental groups worry that the rush by U.S. energy companies to supply the world with crude will lead to more local pollution and higher global emissions.

Battle lines

The end to the four-decade ban on U.S. crude exports was the big prize in the budget battle for Republicans, who saw it as an archaic policy given the nation’s exploding production of oil and natural gas. In return, they agreed to the demand from Democrats for a five-year extension of credits for wind and solar energy producers and a renewal of a land and water conservation fund. Democrats also blocked a push by Republicans to GOP proposals to impede Obama administration clean air and water regulations.