Oil is overflowing U.S. storage facilities partly because of the 40-year-old export ban. The wave of bankruptcies and layoffs that many have predicted for the U.S. energy sector may finally be coming, but less because of the distressed price of oil than because producers will have to stop producing if they have nowhere to send their output. Today’s oil export ban was part of a spasm of nonsensical responses to the 1970s, all of them producing disasters on their own different schedules. Price controls on gasoline, the first stooge, quickly failed amid long lines at gas stations. Fuel-economy rules for auto makers, the second stooge, persist to this day, and played an unsung role in driving the auto industry into bankruptcy by forcing it to lose billions trying to compete in the small-car market with the Japanese.
The third stooge of 1970s energy policy, the ban on U.S. oil exports, is now getting ready to produce its own unique pratfall. Thanks to the fracking boom in Texas and North Dakota, America is producing more light sweet crude than domestic refineries can handle. Oil producers were already being denied a premium of $12 a barrel by not being allowed to export this oil. Soon the only option may be to shut down production altogether.
Oil has been one of the few boom industries in Obama’s America, creating a disproportionate share of new jobs. Among many stupidities, very light petroleum known as a condensate can be exported if it happens to come out of a gas well. If the same material comes out of an oil well, it can’t be exported without special permission. Ultra-light crudes account for a high proportion of booming Eagle Ford Shale production in Texas. Such crudes are especially coveted by Asian refiners, which means domestic producers are leaving a large premium on the table.
Who wins? Domestic refiners get artificially cheap oil to run their plants. An industry mythology claims consumers also benefit thanks to cheaper gasoline. Don’t buy it. Gasoline flows freely in and out of the country, so its price is set by the world market.
Clearly, comrades, rather than opening up crude oil exports, we must close the Gasoline Export Loophole!