NEW YORK: The United States has abolished the 40-year restriction on oil exports. While American oil producers are enthusiastic about the decision, market reality may dictate otherwise.
Besides the obvious problem facing oil exporters such as low prices due to global oversupply, US producers are facing a number of other obstacles.
Despite being a major oil producer, the US still heavily relies on crude imports. The US produces 9.4 million barrels per day while consuming nearly 20 million barrels. Simple math indicates that the country cannot be a significant crude exporter.
According to RBC Capital Markets’ commodities strategist Michael Tran, it’s crucial to understand where the American oil will end up after the export ban is lifted.
At the moment, US exporters are targeting Canada, and are likely to want to expand to countries like Venezuela and Mexico. Tran says both of these countries could benefit from US light oil. Venezuela has already imported light crude from West Africa to blend with domestic ultra-heavy brands, while Mexico’s “less sophisticated” refineries choose the lighter blend.
“The implications of increased crude exports to Mexico come at the expense of US gasoline exports. Roughly half of the 450 thousand barrels per day of gasoline that the US currently exports go to Mexico. Importing light crudes from the US means that Mexico will be able to increase its gasoline yield at domestic refineries and, at least partially, wean itself off of US gasoline. In other words, US crude exports to Mexico effectively cannibalize US gasoline exports,” Tran said.
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