US Lifts 40-Year Ban on Crude Export

US Lifts 40-Year  Ban on Crude ExportUS Lifts 40-Year  Ban on Crude Export

The US Congress voted on Friday to repeal the 40-year ban on exporting crude oil in a U-turn in energy policy sought by Republicans as part of a bipartisan deal that also provided unprecedented tax incentives for wind and solar power.

The Senate, on a 65-33 vote, approved lifting the ban and providing five-year extensions of tax breaks to boost renewable energy development as part of a $1.8 trillion government spending and tax relief bill that US President Barack Obama quickly signed into law, Reuters reported.

The energy deal was hammered out in secret talks among congressional leaders over two weeks.

Senators Lisa Murkowski, an Alaska Republican, and Democrats Heidi Heitkamp of North Dakota and Martin Heinrich of New Mexico had worked for more than a year to get the deal.

Democrats who backed the deal asserted that its provisions encouraging renewable energy were important for combating global climate change.

"This is the biggest deal for addressing climate change that we are going to see," Heinrich said in an interview.

Congress, concerned about US dependence on imported oil, imposed the crude oil export ban after the Arab oil embargo of the early 1970s that sent gasoline prices soaring and contributed to runaway inflation.

Arab members of the Organization of Petroleum Exporting Countries imposed the embargo following the US decision to resupply the Israeli military during the 1973 Arab-Israeli war.

Drillers have said lifting the ban would increase US oil security and give Washington's allies in Europe and Asia an alternative source of crude beyond OPEC and Russia. The bill could benefit oil companies, including Exxon Mobil Corp, ConocoPhillips and Chevron.

Opponents of lifting the export ban said the action would harm the environment and could lead to an increase in fiery derailments of crude-carrying trains.

Due to a global glut in oil supplies, lifting the ban is not expected to lead to significant US export shipments for months or even years, but could give crude producers the increased flexibility they coveted.

Impact on Producers

Drillers said continuing the ban would choke a boom in shale oil production since 2008, particularly in North Dakota and Texas that has pushed domestic oil prices down from more than $100 a barrel to below $40.

Lifting the ban was "particularly important at a time when the industry is experiencing a period of extreme volatility and uncertainty," Ryan Lance, chairman and CEO of ConocoPhillips, said in a statement.

But the surprising change in the US energy policy—once strongly opposed by Obama and Democrats—could become rather significant only if crude prices rise again.

With oil prices grounded near $35 per barrel—about 65% lower than the peak in 2014—many US producers have cut back and some may end up going out of business.

The break-even price for most US oil producers is between $40 and $50, so there is no incentive to sell oil overseas, or anywhere, if they take a loss on it.

With the persisting glut in the global crude market due to an oversupply by OPEC producers such as Saudi Arabia and Iraq, and non-OPEC heavyweight Russia who chose to defend market share, prices are unlikely to recover any time soon.

Additionally, more oil will be flowing into global markets when Iran begins exporting oil again when sanctions are lift, which would weigh heavy on the industry.

But if oil rises above $50, an unlikely but possible scenario, the picture could change. The higher prices go, the stronger the incentive will be for US producers to crank up drilling and send the crude overseas.

Energy analysts are forecasting low prices for a long time and market watchers are waiting to find out what will happen when American oil hits overseas markets. But oil markets have a way of surprising everyone and Washington may have unleashed more than it realizes.