WASHINGTON — The government’s top energy analysts waded into the debate on exporting crude Thursday, releasing a study asserting that the cost of gasoline in the United States is closely tied to the price of international crudes, not domestic oil.
Although the report steers clear of making any recommendations about the nation’s longstanding ban on selling most U.S. oil overseas, its finding buttresses the arguments of export advocates that lifting the trade restrictions could translate into lower gasoline prices. Selling more U.S. oil overseas — and the possible increase in domestic production to follow — is seen as lowering the price of the international benchmark, Brent crude, even as it gives a modest lift to domestic West Texas Intermediate oil.
And in the end, according to the 43-page EIA analysis, it’s the international price that matters.
“The effect that a relaxation of current limitations on U.S. crude oil exports would have on U.S. gasoline prices would likely depend on its effect on international crude oil prices such as Brent, rather than its effect on domestic crude prices,” the agency said. “Brent crude oil prices are more important than WTI crude oil prices as a determinant of U.S. gasoline prices in all four regions studied, including the Midwest.”
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But EIA noted that there are plenty of caveats, with the extent of swings in domestic and global crude prices depending partly on how much U.S. exports affect the actual price realized by companies pulling oil from wells in North Dakota, Texas and other states. In some cases — such as Midland, Texas — scarce options for moving a flood of Permian Basin production to market is suppressing local crude prices. Allowing oil exports may do little to affect that Midland discount, at least until the area’s takeaway capacity climbs.
Other uncertainties noted by EIA include the ability of domestic refiners to absorb the nation’s oil production and, notably, how key foreign producers would react to changing U.S. oil production.
The question of what oil price drives the cost of gasoline is a relatively new one. EIA notes that before 2011, the question was relatively moot, since “the price spread between Brent and WTI was relatively narrow and consistent.” That started to change in mid 2010, when growing deliveries of Canadian crude to Cushing Okla., collided with climbing U.Sl production in North Dakota and Texas, prompting transportation bottlenecks in the Midwest.
The price of WTI crude started declining, with its discount to Brent reaching as high as $28 per barrel. And in the meantime, gasoline prices stuck with Brent’s cost, even as WTI crude prices diverged.
EIA’s analysis looked at weekly changes in spot gasoline prices from 2000 through June 2014 in New York, the Gulf Coast, Chicago and Los Angeles as a function of weekly changes in the spot price of Brent and WTI crudes.
Several studies released this year suggest U.S. gasoline prices would decline if the nation sells more oil overseas, with those findings pegged to the notion that international crude costs dictate pump prices here at home. EIA’s affirmation of that theory could be seen as giving some credence to the third-party analysis.
EIA itself stresses that Thursday’s report is not an analysis of what, actually, would happen to the cost of U.S. gasoline if the nation started exporting more oil. It is actively studying other questions tied to the nation’s crude export policy, with at least one more report expected before the end of the year.
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