Driven by improvements in technology and drilling techniques, US oil production began to surge higher in 2010, reversing several decades of production declines. Robust oil-production growth is set to continue and the IEA¹ expects the US to become the largest global oil producer by 2015, surpassing Saudi Arabia and Russia.
Among the major US implications of this trend are a lower reliance on imports, higher economic growth, cheap energy for consumers and a significant reduction in the trade deficit.
Meanwhile, oil-transportation pipeline, rail and barge infrastructure additions have been racing to keep pace with the growing US oil supply. The US may reach a point in the near future where its Gulf Coast refineries – which are generally geared to process heavier, sour crudes – cannot handle the coming glut of light, sweet crude produced in the US.
As a result, significant debate is beginning over the outdated US crude-oil export ban, which was put in place during the energy crisis of the mid-1970s. The debate will likely gather momentum in this election year, with several considerations coming to the fore – from the economic (trade balances, job creation, impact on GDP²) to the political (gasoline prices, energy security, oil-producing vs. oil-consuming states).
While an outright lifting of the export ban appears unlikely anytime soon under the current administration, the export policy could be modified to allow exports under specific circumstances. However, even with these changes, we believe the export activity would likely do little to help equalize industrial-input costs between the energy-intensive US and its European peers. We believe the investment implications of easing some of the restrictions of the crude oil export ban would be positive for US oil producers and service providers, moderately negative for international oil producers and negative for US refiners.