‘Simple Policy’ Could Lower Gas Prices In U.S.
In an article last week, The Washington Post editorial board proposed a policy that they believe would not only lower gas prices in the United States but also spur economic growth and make our international allies happy. The policy? Apparently it already exists: Remove the U.S. ban on domestic crude oil exports. A ban the editorial board called, “irrational and outdated.”
How releasing the ban could spur lower gas prices.
The article points out that the oil shocks of the 1970s are what inspired Congress to impose the ban to control skyrocketing gas prices. Today, the situation is quite different. The authors share that “U.S. crude oil production rocketed up 74 percent from 2008 through 2014. That has led to a glut here at home, where crude oil is selling at a discount relative to world prices.” They go on to explain that the “superficial logic” of the ban still holds some power, as it seems plausible that lifting the restrictions would result in more oil going abroad, thereby hurting the economy by raising gas prices in the U.S.
To the contrary, analysts now predict gas prices would go down if the ban were lifted. This, the authors say, is because people don’t fuel up with raw crude oil. That is, it’s not consumers, but refiners, who buy the crude oil. The article goes on to say that “Domestic gasoline prices tend to track international, not domestic, oil prices. So the current policy is great for refiners who get to buy their feedstock at a bargain price and sell their product at an international rate.” They then add that the policy is unhelpful, though, to domestic producers, because these producers are forced to accept less for the crude they sell both on the market and to consumers. And the consumers also don’t get the savings passed on to them.
Most interestingly, the article reports that, “[…] a Government Accountability Office review released in July noted wide agreement among analysts that allowing crude exports would tend to decrease international oil prices, which is the way to depress gasoline prices. That is why analysts counterintuitively predict that lifting the export ban would increase U.S. crude oil prices by $2 to $8 per barrel but reduce U.S. gasoline prices by 1.5 cents to 13 cents per gallon.”
How it could spur economic growth and make our allies happy.
According to the Post, the benefits the U.S. would gain from a “healthy energy production sector” is possibly the most significant reason to lift the ban. They report that a recent analysis from IHS Energy shows a sector supply chain that spans the nation, “[…] from engineers on site in North Dakota to heavy-duty equipment manufacturers in the Midwest to computer programmers in Massachusetts.”
However, the authors add that the current export ban could leave the business in a “wholly unnecessary gridlock,” because our nation’s refining sector is not really set up for handling the kind of crude oil that comes from new wells, and selling to foreign refiners is the most natural solution.
The authors’ answer to the legitimate worry that lower prices will lead to higher consumption? They suggest taking advantage of the opportunity to make a “productive deal”: Make energy research funding, efficiency programs, or even a charge on carbon dioxide emissions part of the package.
In response to the Post article, Director of Marketing Greg Hernandez said, “As the industry continues its significant increases in domestic production, we’re geared up ready to support it by continuing to focus on the quality of our products. This is really a historic time for our nation, and it’s a privilege to watch it all unfold.”
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