Democrats Call Out Biden Administration On Absurdity Of Reinstating Crude Oil Export Ban
Democrats from oil producing states are pushing back against the Biden administration’s prospective proposal to reinstate the crude oil export ban as a hopeful solution to bring down the price of gasoline for American consumers.
The letter, signed by Reps. Henry Cuellar (Tex.), Vicente Gonzalez (Tex.), Sylvia Garcia (Tex.), Lizzie Fletcher (Tex.), Tim Ryan (Ohio) and Lou Correa (Calif.), was clear in its explanation as to why such a plan would not work and how it could detrimentally impact Americans and allies abroad:
“It is important to remember the positive role that American oil and natural gas have previously played, and will continue to play, in the responsible development of our global energy resources. We must continue to assure world markets that American oil and natural gas will be available to all countries that participate in good faith with the global economy.”
“We urge you and your administration to reject any well-intentioned but misguided calls to curtail American crude oil and/or petroleum exports in reaction to high gasoline and diesel prices currently seen at the pump. As you know, domestic gasoline prices are set by an international benchmark (Brent), and restricting US crude exports would lower global supply and increase costs here at home.” (emphasis added)
A Prospective Ban
It is a good faith effort to an administration that has been flip-flopping on the possibility of a crude oil export ban. Energy Secretary Jennifer Granholm said a ban on crude oil exports was off the table in December, and changed positions to say all options were on the table in May and doubled down that she doesn’t think “anyone is taking anything off the table” this week.
This despite explanations as to why reinstating the ban may actually increase prices, as the Federal Reserve Bank of Dallas warned the start of the year:
“Because a cessation of U.S. crude oil exports would lower the supply of oil in global markets and raise its price, one would expect global fuel prices, if anything, to increase as a result. Refiners can always sell these fuels abroad at their global price, so it makes no sense for them to sell for less in the domestic market.”
“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.” (emphasis added)
This was further confirmed by Federal Reserve Chair Jerome Powell in his hearing before the Senate Banking Committee on Wednesday:
“There’s really not anything that we can do about oil prices. They’re set at the global level.”
In fact, during a press briefing this week, even Secretary Granholm admitted that “no president alone can control gasoline prices.”
A Crude Solution In Need of Refinement
The signatories continue that any surplus of domestic energy wouldn’t guarantee an increase in gasoline:
“United States refiners are also working around the clock to produce fuel for consumers. Nationally, and even with some regions undergoing planned facility maintenance, American refiners are running at 94.2 percent capacity. Along with the Guld Coast, utilization is 96.5 percent, and on the East Coast, 99.2 percent. Such an action would have the opposite of the intended effect, creating market inefficiencies as American crude oil and American refineries would no longer have the flexibility needed to optimize output. Inefficiencies for industry translate to higher prices at the pump.” (emphasis added)
Refiners are at capacity as it stands, and not all refineries solely process the light sweet crude that the Unites States primarily exports. The American Petroleum Institute explains:
“The ability to process the heaviest crude oils has vastly expanded the Western Hemisphere’s oil resource and supply potential, as these oils come mainly from Canada and Venezuela. Therefore, many U.S. refiners are configured generally to process heavy crude oil.”
At the end of November 2021, the United States exported an average 3 million barrels per day, meanwhile, refiners imported more than 6 million barrels of mostly heavier crudes from Canada and other foreign suppliers that are unavailable domestically. The heavier crudes are vital to the production of diesel and jet fuel.
By removing U.S. crude from the market, the price of all types of crude jumps to meet the shortfall in global supply, keeping prices of the imported heavy crude oils high.
The Long View
A decrease of global supply isn’t in the interest of the Biden administration who has made promises to Transatlantic allies that the Unites States could help supply the shortfall of Russian imports. The global energy crisis will continue unless there is a consistent and abundant supply of energy, which isn’t encouraged if companies don’t have access to the global market.
Last year, then-acting administrator of the Energy Information Administration, Stephen Nalley, said an export ban would give domestic energy markets a surplus of energy, but he said prices internationally “would skyrocket [and] lower prices in the U.S. would probably discourage more production.”
If the White House banned or even restricted exports, that would reduce the quantity of petroleum available in world markets, driving prices higher and leaving allies more vulnerable to Putin’s weaponized energy policies, or weakening the already vulnerable European alliance to block Russian oil imports. While the United States can successfully ban Russian energy imports with a moderate impact, other countries aren’t as fortunate – if the United States banned exports, it could push other nations back towards Russia.
The prospect of a ban harming geopolitical efforts to stop Russia’s war on Ukraine would only become more pronounced the longer a ban continued. As Secretary Granholm noted:
“We will have a demand problem when China opens up after Covid, there will be additional upward pressure on supply. This is why we need not just in the U.S. but we need globally more supply brought on board.”
Along the timeline of any export ban, a sustained increase to global demand could further raise prices and have many countries do what the United States is considering now – looking inward and focusing on their own energy dilemma, ignoring the greater implications.