Americas News
Washington Makes "Significant Step" Towards Lifting US Oil Export Ban with Mexico Crude Swap Deal
The U.S. Commerce Department has told Congress that it will approve an application by Petróleos Mexicanos (Pemex), Mexico’s national oil company, to exchange heavy oil pumped there for U.S. light crude, The Wall Street Journal reports.
The decision, said to be “a significant step” toward lifting the export ban that dates to the Arab oil embargo of the 1970s, will reportedly allow U.S. drillers a new market for their product without technically exporting the product, as the two countries will only be exchanging crude.
Details on how much crude will be swapped between the U.S. and Mexico is yet to be released, but Pemex is said to have requested to bring in about 100,000 barrels of U.S. oil per day, equivalent to 36 million barrels per year.
“Once both countries have this experience and see the benefits, it will create a deeper understanding of the merits and people will feel more comfortable with them,” said José Manuel Carrera, head of Pemex’s commercial division.
“This is a small step, but it’s also very significant.”
While the U.S. has continued to deny other countries similar requests, Daniel Yergin, vice chairman of IHS Inc., argues that the deal with Mexico demonstrates that the U.S. government is trying to deal with the “dramatic” new energy surplus in the country.
“It’s pretty clear, directionally, where things are headed. This ban becomes more and more awkward and ill-fitting. It doesn’t fit reality,” said Yergin.
It is understood that under the deal, any U.S. oil sent to Mexico will have to be refined within that country.
Impact on Price?
Some members of congress have argued the deal will push up prices and reduce supply.
Jay Hauck, executive director of Consumers & Refiners United for Domestic Energy, has argued that U.S. oil exports will cause the price of the benchmark West Texas Intermediate (WTI) crude contract to rise, possibly reaching parity with the Brent world oil price, meaning both U.S. refiners and consumers will end up spending more.
However, some energy economists, the Congressional Budget Office, and the U.S. Energy Department have reportedly suggested that exporting U.S. crude will help bring down global oil prices by increasing supplies to the world market.
U.S.-traded oil is said to have closed at just above $42 a barrel Friday, as global oil prices reportedly remain about $6 above the price of U.S. crude.
In May, it was reported that a possible decision by the U.S. government to lift its ban on the export of crude oil may change the dynamics of the tanker market.
At the beginning of August, Ship & Bunker reported that theU.S. Senate Energy and Natural Resources Committee had voted to repeal a 40-year ban on crude oil exports, leaving experts in disagreement on how oil prices would be affected.
