As U.S. average gasoline prices hit $5 a gallon, the Biden Administration is scrambling to lower the highest fuel prices on record and the greatest inflation in 40 years.
The Administration is considering all possible tools to affect a decline in gasoline prices, but all those tools would either do very little to reduce prices or could even backfire spectacularly in a global market that is tight on supply.
One of the most short-sighted ideas in the toolbox is a ban or some kind of restriction on U.S. oil exports — a tool that hasn’t been ruled out in the White House.
When oil and fuel markets are tight globally, the worst thing the world’s top crude oil producer and a major exporter of refined petroleum products could do is to restrict exports.
Depriving the market of oil at this time would not only not lower gasoline prices in America: it would send crude oil prices even higher, if US$120 a barrel isn’t high enough.
Considering that crude oil prices are the single biggest factor determining U.S. gasoline prices, accounting for over 53 percent of the average retail price per gallon Americans are paying at the pump, a restriction on oil exports is not the right answer to respond to the record-high gasoline prices.
It’s foolish to think that artificially lowering the availability of a global commodity would somehow make that commodity cheaper in the world’s top consumer of oil products, the United States.
Yet, the Biden Administration,—desperate in its attempts to lower gasoline prices and inflation ahead of the mid-term elections in November, has not ruled out the idea of using export restrictions to try to curb soaring prices at the pump.
“I can confirm the president is not taking any tools off the table,” U.S. Secretary of Energy Jennifer Granholm said at the end of last month, asked whether the Administration was looking at export restrictions as a way of reducing gasoline prices.
Any tool in the box could have a minor effect on lowering American gasoline prices, but a ban on oil exports would actually drive them higher, energy analysts, the industry, and the Dallas Fed say.
“More political intervention is not the solution, though,” Dan Eberhart, CEO at U.S. privately-owned oilfield services company Canary, writes in Forbes.
“Let’s not forget that energy commodity prices are set in the global marketplace, and the world – not just the United States – faces a severe energy crunch,” says Eberhart.
According to Frank Macchiarola, API senior vice president of policy, economics, and regulatory affairs:
“Restricting U.S. energy exports would only create further instability in the marketplace, diminish American energy leadership and represent a grave disservice to our allies.”
Then there is the thing that not all crude is equal. Refineries on the U.S. Gulf Coast are configured to process heavier crude, which American shale producers do not pump; their crude is light and sweet.
That’s one of the reasons why the United States continues to import crude oil, including from OPEC producers, despite being the biggest producer of crude in the world, bigger than Saudi Arabia.
The United States was a total petroleum net exporter in 2020 and 2021, but it remained a net crude oil importer in 2021, importing about 6.11 million barrels per day of crude oil and exporting about 2.90 million bpd, according to the EIA. However, some of the crude oil that the U.S. imports is refined by U.S.
Refineries into petroleum products, such as gasoline, heating oil, diesel fuel, and jet fuel, that the U.S. exports.
Even before the Russian special military operation in Ukraine and the sanctions on Russia that upended global oil and fuel markets, Dallas Fed economists Garrett Golding and Lutz Kilian said in January this year that “there is little policymakers can do to address this concern. Calls for a U.S. crude oil export ban, in particular, appear counterproductive.”
“In other words, the prices of gasoline and diesel fuel in the U.S. would not be expected to decline and might actually increase, rendering the crude oil export ban not only ineffective, but also counterproductive. Thus, there is no reason to expect that U.S. consumers would benefit from such a ban,” the economists argued, analyzing calls for export restrictions from policymakers.
This opinion of the Dallas Fed economists was published a month before the Russian-Ukraine conflict, which roiled global energy markets.
Restricting U.S. oil exports now would deal another shock to the market and would backfire and lead to record crude oil prices. These crude prices account for more than half the price Americans pay per gallon of gasoline.
The answer to the high prices at the pump is not the Biden Administration’s current finger-pointing and anti-oil rhetoric. It’s leaving U.S. oil producers to work unobstructed at these high crude prices, the industry says.
Companies keep investors happy with high returns amid record cash flows, but the industry would have more incentive to produce more oil if it wasn’t obstructed by federal regulatory uncertainty, pipeline cancellations, and accusations of price gouging.
“Washington’s focus on short-term crises has been like a set of blinkers, blocking out policies and actions that could help increase production and signal to the global oil markets, which largely determine pump prices, that American energy is coming on strong,” API’s Macchiarola wrote earlier this month.
“At crisis points like the one our country faces today, we need policies that support meaningful increases in American oil and natural gas production – not misguided, partisan price-gouging proposals and punitive taxes on energy company earnings.” — oilprice.com