July 30, 2014 marked a significant turning point in the global oil market. A Singaporean tanker carrying $40 million of American crude embarked for South Korea – the first time the US has exported oil in four decades.
With the long-time ban on the verge of lifting, and the production of domestic fuels continuing to boom, what are the implications? Is it another step closer to becoming oil independent?Promising Projections
Before we focus on the future, let’s recap a bit of history. The ban was set back in the ‘70s when Arabian members of OPEC led an embargo that jacked gasoline prices to unsustainable levels and when US oil production was falling sharply.
With the tables turned, reports released by IHS and by ICF International partnered with EnSys Energy reveal some bright implications:
- Greater increase in domestic crude production
- Billions of dollars in further investment, exploration and production
- Creation of hundreds of thousands of new jobs
- Lower petroleum prices by a yearly average of 8 cents per gallon
- Increase in average household disposable income by hundreds of dollars
- Billions of dollars in GDP gains and government revenues
- Billions of dollars in trade deficit reduction
- Reduced net petroleum imports, saving billions of dollars
- Alleviation of gridlock with refining capacity for light tight oil, further improving economy
- Crude exports would increase to millions of barrels per day creating greater value
- Increased international investors and speculators
The development doesn’t bode well for everyone though. As Europe braces for another blow to its refining capacity, up to a dozen refineries will likely shut down by 2020.
Over the last few years, the unexpected surge in imported US products has created an overcapacity with the demand for domestic fuel sliding to an all-time low since 1994. Half the refineries are configured for gasoline from the WWII era, even though diesel represents three quarters of the motor market, exacerbating the issue. Furthermore, the US, offering discounted gasoline, is increasing business with Africa, to the detriment of other economies.Independent USA
The potential market shift looks good for the US to become oil independent. Increased production, primarily driven by the private sector, creates a more secure and stable domestic market that is less vulnerable to global disasters and political unrest. And contrary to some reports, crude exports would not increase gasoline prices at the pump as those reflect global market prices.
However, the US still needs to proceed with caution. Too much surplus can drive down prices, decreasing the return on drilling. And without the export ban lifted, the nation could find itself in a state of overcapacity as well.
“There are different types of oil and they require different kinds of refining processes and facilities,” said IHS director and study co-author James Fallon. “And as a result of the boom in tight oil production, the U.S. is exceeding its capacity to process that type of crude”.
As industry changes continue to develop, maintain your relationship with your fuel distributor. Their expertise, professional practices and advanced solutions will help to keep your business stable and your future bright.