Hushed talks have been going on in recent weeks between U.S. oil producers and the U.S. Commerce Department.
What was the topic on the table? Lifting the oil export ban put in place during the 1970s.
Of course, a complete overhaul of the ban would require a congressional law and the signature of the president, but there happens to be a tiny loophole that the Obama administration and Bureau of Industry and Security are trying to exploit in order to expedite the process.
You see, another product of the tight oil boom that few people ever talk about is condensate. It’s a lighter liquid form of hydrocarbons resulting from oil and natural gas production. And U.S. producers have seen a dramatic rise in their condensate reserves.
Thanks to the shale plays like the Eagle Ford in Texas, condensate reserves are nearing 3 billion barrels. And the Commerce Department could use condensate as a litmus test for full-scale oil exports. The lighter form would be exported to gauge the global market for U.S. products and any possible effect on prices.
Don’t get too excited, though…
Any big decision on oil exports would come after the November midterm elections so the President and Congress can avoid any election-harming decisions.
Just another case of politicians being politicians — nothing to see here.
But Obama could consider condensate exports before the elections to give embattled Democratic senators in conservative, pro-oil exports states a boost.
And oil producers in shale formations all over the U.S., like Pioneer Resources, have ramped up lobbying efforts in Washington.
Still, there is one group in the oil industry not joining in on the lobbying: U.S. refiners. The reason is because of their access to cheap North American supply — there’s no question that refiners have been making an absolute killing from exporting petroleum products up until now.
You see, even though there is a ban on oil exports, there is no such ban on gasoline, propane, diesel, and other refined commodities, which means these refiners can take advantage of cheap domestic oil prices and sell it at a huge premium in the form of petroleum products, which can be exported to countries around the world.
If oil exports are allowed, they will definitely feel the hit, so they will be fighting to prevent the exports of condensates.
And if exports are allowed, U.S. oil drillers will finally see some much-needed profit from the U.S. oil glut. As news continues to roll in, investors should see surges in the share prices of crude oil producers in the most-famous U.S. tight oil plays.
Until next time,