Eleven Democratic Party Senators have written to President Biden asking him to ban the sale of U.S. crude oil exports because of public concerns over rising gasoline prices. However, reinstating a U.S. crude oil export ban would actually increase gasoline prices rather than reduce them, according to an analysis recently published by IHS Markit, a research firm. Gasoline prices are at their highest level since 2014—an increase of about $1.00 a gallon since Biden became President. The Biden administration earlier asked OPEC to increase foreign oil production to ease oil and gasoline prices, but, rather than increasing oil production more than the cartel had already planned, it told Biden that increases should come from U.S. oil production. According to the International Energy Agency, that is happening, which should ease the rise in gasoline prices and expand global oil supply, but the change is likely to be too slow for Biden, who has done all he can to put a damper on U.S. domestic oil production.
IHS Markit Report on Oil Exports and Gas Prices
Eliminating 3 million barrels per day of U.S. crude oil exports would disrupt the domestic and global oil supply chain and would likely increase gasoline prices. U.S. gasoline prices are connected to the global oil and gasoline markets—not the price of U.S.-produced crude oil. A ban on exporting U.S. crude oil may lower the price of domestic crude, but that could discourage production of both oil and natural gas, which would likely result in a tighter global oil market—not lower gasoline prices.
The lost barrels on the global market from a U.S. export ban would have to be replaced by other oil producing countries, and it is not clear if all of that could or would be replaced in a tight market. The disruption of international crude oil flows would lead to a scramble to find other oil and that would generate additional upward pressure on crude oil prices—and thus increase the price of U.S. gasoline.
Thus, a U.S. crude oil export ban would actually make the situation worse—for both the United States and the world—at a time when global supply chains are already under exceptional strain. Such a ban would disrupt global oil supply chains, run counter to decades of U.S. policy promoting the free flow of oil and gas, lead to inefficient and costly re-allocation of domestic crude oil production, disrupt supplies for allies and discourage domestic production—which would all put upward pressure on U.S. gasoline prices. It would also send a negative signal to allies and partners about the reliability of the United States.
A ban on U.S. crude oil exports also will not help supply more oil to U.S. refiners, who refine the oil into gasoline, because the United States produces light sweet crude oil, which is desired by foreign refineries, not U.S. refineries. U.S. refineries are designed to refine heavy sour crude, which comes from Canada, Mexico, Russia and the Middle East.
Further, oil produced in Texas, the top oil-producing state, would be costly to move to refining centers on the Atlantic and Pacific coasts. There are no crude oil pipelines to either coast, and railroad facilities to transport crude by rail have been out of use.
According to IHS Markit, the most effective way to lower crude and gasoline prices is to increase crude oil production here in the United States. Instituting a crude oil export ban would threaten U.S. oil production growth and make the world oil market more heavily dependent on OPEC+, increasing their production to meet demand—a group that has historically manipulated market prices to increase their government revenues and has even used oil for political purposes.
IEA Oil Market Report
According to the International Energy Agency’s latest market report, global oil supplies increased by 1.4 million barrels per day in October, with the United States accounting for half that increase as Gulf of Mexico oil output recovered from the devastation caused by Hurricane Ida. The agency further expects an increase of 1.5 million barrels per day over November and December, with the United States expected to provide more of that increase than any other country. The agency raised its U.S. oil production forecast by 300,000 barrels per day for the fourth quarter and by 200,000 barrels per day on average in 2022, as high prices encourage higher production. The IEA expects oil output to increase in the next two months despite OPEC+ declining appeals from President Joe Biden to increase production beyond a planned monthly increment of 400,000 barrels per day.
Prices for U.S. and Brent crude oil are trading near six-week highs at $80.15 and $81.62 a barrel. Drivers in California are paying a record $4.68 per gallon for gasoline, according to AAA. European prices have escalated as well with record highs in the United Kingdom. Recent data show that the use of personal cars rose above pre-Covid levels in many locations, with provisional data for the United States pointing to very strong gasoline demand in September and October. Despite high prices, gasoline demand in Europe also remained at elevated levels, and consumption in China and India was more than 10 percent above 2019 pre-pandemic levels despite record levels of electric vehicle sales in September, and most likely in October as well.
Biden’s Answer
Rather than helping the U.S. domestic oil and gas industry to increase oil production, President Biden is doing all he can to ensure the opposite and he has written the Federal Trade Commission to investigate what he believes to be “mounting evidence of anti-consumer behavior by oil and gas companies.” From day one, President Biden has taken steps to increase oil prices by canceling the Keystone XL pipeline, which would bring heavy crude oil from Canada to U.S. refineries; placed a ban on oil and gas leasing on Federal lands and waters while his administration reviews royalty rates and other charges on U.S. oil and gas companies for accessing American resources; delayed holding those leases when overturned by the court; stopped access to the Arctic National Wildlife Refuge, which Congress voted to open to oil and gas drilling and whose production is needed to keep the Trans Alaskan Pipeline System operating; and closed oil development in the Naval Petroleum Reserve-Alaska. In addition, the Biden administration has launched initiatives with financial regulators to make investment in fossil fuels more difficult and floated increases in taxes and fees on domestic producers of energy. With all the administration has done against the U.S. oil and gas industry, Biden still has the audacity to ask them to produce more oil.
Several of these actions Biden does not have the authority to undertake as a Court in Louisiana indicated to his ban on oil and gas leasing. As a result, the Department of Interior recently held an auction to lease tracks in the Gulf of Mexico. Companies offered bids on 308 tracts totaling nearly 2,700 square miles during a virtual auction hosted by the Bureau of Ocean Energy Management. It marked the largest total acreage and second-highest bid total from a government auction since Gulf-wide bidding resumed in 2017 with a combined bid of $192 million for drilling rights on federal oil and gas reserves in the Gulf of Mexico.
The day before that lease sale, the Biden administration asked the Fifth Circuit to reverse a Louisiana federal judge’s ruling that blocked the “temporary” ban on new federal oil and gas leasing. After Biden issued his executive order on the temporary moratorium, 13 states including Louisiana and Texas sued in Louisiana federal court; Wyoming sued in Wyoming federal court, and the Western Energy Alliance and Petroleum Association of Wyoming filed a separate suit in that state. Those two cases have been consolidated and ruled on in Louisiana. Biden and his Department of Interior are fighting that ruling, despite the harm it will do to oil and gas producing states and to increasing prices for the American public. Though their words say they are concerned about higher gas prices, their actions tell another story.
Conclusion
President Biden and his minions are either ignorant of market forces and economics or are simply wanting to hurt the American public by ignoring reality despite what folks in the know tell them about oil markets and the best way to reduce gasoline prices. Despite the harm that Biden and his administration have already done, they continue to proceed with that negative direction. The issue is how long the American public will continue to accept the charade.
