Though the Middle East in general – Saudi Arabia specifically – is often considered to be the worldwide leader in oil production, it's actually the United States that stands at the head of the class. Yet despite the surfeit of oil that the country pumps out, there remains an embargo on exporting crude oil.
If the current policy on limiting these exports remains, it could stifle the U.S. oil sector and perhaps even cancel out what gains the industry has experienced in recent years, according to a newly released estimate from analytics firm Platts.
The report, "Exports: Last Demand Standing," argues that for far too long, there's been a ban on sending crude to foreign territory. Though originally initiated to shore up the nation's domestic supply due to the Middle East oil embargo enacted in 1973, the U.S. has since more than exceeded its needed supply.
Tony Starkey, lead author of the study and manager of energy analytics at Bentek Energy, said that the crude oil embargo will have far-reaching implications.
"Sustained export restrictions will produce damaging short- and long-term effects on domestic crude oil prices, the U.S. oil exploration and production (E&P) industry, and the U.S. economy as a whole," said Starkey. "The next several months will see refineries approach their capacity to absorb incremental U.S. crude oil production, and storage tanks push their limits to balance an oversupplied market."
He added that because supply levels are at the breaking point, without a change in U.S. policy, drillers will have to further reduce their oil exploration and extraction efforts.
Employment, wage losses to continue without change
The report contends that inventory levels are bursting at the seams, with U.S.-based energy companies producing an estimated 800,000 barrels of oil per day. Furthermore, though oil demand is greatest in the United States, it's reached its domestic demand capacity. This has resulted in an oversupplied market, which could ultimately lead to scaled back production growth in the immediate and long-term. An undesirable domino effect could then result.
"Without unrestricted exports, the U.S.' E&P industry will suffer," the report stated. "To balance the market, U.S. producers will have to reduce costs further, resulting in additional capital fleeing the energy market, and a loss of wages and employment in the industry. The cost reduction will trickle down through the supply chain to other industries that rely on E&P for a portion of their profits, including, but not limited to, service companies, steel tube and pipe manufacturers, trucking companies and local businesses patronized by oil field workers."
Broad support for rescinding of ban on oil exports
A number of public policy think tanks and economists are proponents of lifting the 42-year-old crude oil export embargo. Gary Clyde Hufbauer, senior fellow at the Peterson Institute for International Economics, noted in an opinion piece recently that because of the restriction, thousands of people have lost their jobs who likely would have been able to keep them were it not for energy companies' inability to sell to foreign countries.
The Reginald Jones Senior Fellow of the Washington, D.C.-based think tank also said that a lot has changed since the 1970s, when the embargo was put into play due to concerns about supply shortages. The boom in shale oil drilling has erased this fear. Despite this, however, what was supposed to be a temporary ban has lasted for four decades.
"No country has launched a parallel case against the crude oil ban, but the president and Congress should not wait," said Hufbauer. "They should amend U.S. policy because it's the right thing to do – for the economy, for national security and to respect international obligations."