Re: Oil Export Ban-Could the Admin be THAT stupid?

Two days ago, I was literally half-joking to the O&G management team that I advise about this possibility as my main concern, however unlikely.

Yesterday, apparently, it became an official talking point.

I believe that this talk + the SPR talk were the 2 main culprits behind the recent oil correction, aside from the obvious point that the market had been on a crazy tear and that nothing goes up forever in a straight line.

The SPR talk to me is just noise. China tried to “paint the tape” negatively in August, and it backfired exactly as I thought it would. An SPR release here will be no different. I wrote about that here.

Re: Oil-Is China Painting The Tape?

Not only that, GS brought up a great point this AM: the US only has about 60 mm bbls left of SPR “release capacity.”

Assuming the Admin is desperate enough to paint the tape and use up the whole 60 mm bbls, GS thinks it only impacts their short-term $90/bbl px target by $3/bbl.

To me, the much bigger risk is that as we get closer to the 2024 elections and possibly the 2022 midterms, the Admin gets really desperate for a win and might do something really stupid.

Top of the “something stupid” list would be to ban exports of WTI — a policy that was actually in place for 40 years from 1975 to 2015.

Why would it matter now and not have mattered then? Two words: “SHALE REVOLUTION.” The original ban was put in place as a tit-for-tat in response to the Arab oil embargo of the early 1970’s.

Over time, as our domestic conventional production tailed off, the export ban became a toothless anachronism. That all changed when the shale revolution happened here and allowed the US to significantly increase production.

Fortunately, the government recognized the anachronistic nature of the ban in 2015 and lifted the export ban.

That all said, there is no telling what kind of short-sighted, ham-fisted policies an Admin reeling from declining poll numbers might do to gin up its public image.

But wouldn’t an export ban be good for consumers if it made oil prices decline? My fear is that the Admin would adopt exactly this kind of shallow, first-order logic, because such a decision WOULD impact prices negatively in the short-term.

BUT (and this is a BIG BUT) it would have longer-term disastrous consequences for the US and the world because it would just exacerbate discrepancies between oil grades and place the world firmly back into ME dependency.

Not only that, most of our domestic refiners were built at a time when our oil inputs were heavy grades from the ME. As such, even during this fabulous shale revolution (which produces light grades), we have never stopped importing ME heavy, because our refiners still need heavy.

The lifting of the export ban at least has allowed our domestic oil producers to access the international market, improving our trade balances and providing jobs domestically.

All of that changes with an export ban. We literally would be shooting ourselves in the foot with no appreciable benefit (besides to ostensibly score political points).

Here is Cap One this AM: “It would be such a colossal, short sighted, apex of stupidity decision that it will put a dagger into the heart of US producers and US oil grades.”

“It will also have the opposite impact on fuel fractions, spiking gasoline prices along with Brent and other international crude grades. Overall, it creates an even more unstable market condition that will come back to bite the US...in the long run.”

“And OPEC+ will basically just throw a big party and celebrate this colossal stupidity.” 100% agree — especially since this would blow out the Brent/WTI spread.

So there you have it. To me, the stupidity of government is the biggest threat to the oil thesis. This will be something to watch.

The WTI/Brent spread is a decent inverse correlate to “Probability of Export Ban” (aka: ASAP = Another Stupid Admin Policy). Something to watch.