Government policies virtually without exception create economic distortions, so that policy reform can yield results highly counterintuitive. That is the case with the emerging effort to end the current U.S. ban on the export of crude oil, enacted as part of the 1975 Energy Policy and Conservation Act. The ban was justified as a tool with which to insulate the U.S. economy from the effects of international supply disruptions and to reduce the prices of such refined products as gasoline.
Both of those justifications were and remain fallacious. In the absence of policy distortions, domestic prices (net of international transport costs) must equal international prices. If domestic prices were lower, foreign suppliers would shift sales to other economies, reducing the overall supply of crude oil or refined products to the U.S. market until domestic and international prices were equalized. The most obvious policy distortions in this context would be import limitations (quotas), which would raise domestic crude prices artificially, as they did from 1959 through 1973; and export limitations, which have the opposite effect.
Just as the past limitations on imports increased domestic crude prices above international prices, so does the current export ban suppress domestic prices below international levels. The current price difference between domestic (West Texas Intermediate) and foreign (Brent) crudes is about $5 per barrel. A repeal of the export ban would increase domestic prices modestly, by an amount around $2 to $3 per barrel. This would be a straightforward supply-and-demand effect reducing the difference between the spot prices for crudes produced domestically and overseas, a difference that has been increased artificially by the export ban.
You can read the rest of the article at The Hill. It will be published here on October 4th, 2015.
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