A week or so from now, the first overseas shipment in 40 years of U.S. crude oil will take place. A tanker will transport some 600,000 barrels from Houston to a port in northern Europe, and from there it will go to a refinery in Switzerland. The refined products will be consumed in northern Europe.
Exporting crude oil has not been allowed since 1975, when an embargo by Arab nations caused a severe reduction in oil availability and Congress reacted by protecting what oil the U.S. produced. (Canada became an exception in the 1980s; about 400,000 barrels a day are sent to Canada under a special agreement.)
The Wall Street Journal reported on the first tanker shipment in a story last week.
How much oil will be shipped overseas remains to be seen. Port facilities to handle oil are limited, and there will have to be significant construction. For the time being, the new overseas market is not expected to be a factor in the price of oil, currently about $35 per barrel. But if overseas demand cause exports to increase, it could strengthen prices.
While automobile owners are enjoying gasoline priced at close to $2 per gallon, the $35 per barrel of crude has resulted in job layoffs, tax revenue reductions and corporate angst in many energy-producing regions. Economists differ, but many talk of the desirability of $50 to $60 crude oil prices to provide a balance between industry health with consumer benefit.
In Alaska, which is an extreme case, to fund the government with such low-priced oil there is talk of increased corporate taxes and new sin taxes, and a greatly reduced per-person payout at year-end.
While the Organization of Petroleum Countries remains the gorilla in the room, there are numerous smaller players in the oil market that in combination could move quantities and therefore prices one way or another. Oil from Iran will be on the market following the agreement signed by the U.S. and several countries, while the slowdown in China’s economy reduces the growth in energy demand there.
Energy conservation continues to have an increased following, with industrial machinery and autos worldwide being designed to be especially fuel efficient. Public transportation continues to expand, and solar and wind energy development grow.
In fact, in the recently signed U.S. omnibus funding bill, the end of the oil embargo was offset, politically, by the continuation of tax credits for solar and wind development.
Natural gas is also a growing force, as its cleaner energy label has it replacing coal in electricity production. Not too long ago, that replacement could have been oil.
We are comfortable with an energy marketplace that includes the shipping of oil both to this country – and there still is a lot of that – and away from it. There are different economics at play among products, regions and countries, and there always will be.
