President Trump Facing Growing Pressure to Restrict U.S. Oil Exports

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The U.S. oil industry got a scare last week. News reports claimed that the Trump administration may be considering an export ban on crude oil and refined petroleum products such as gasoline and diesel in order to bring those prices down—prices which have been elevated considerably by the reduction of oil supplies worldwide in the wake of the Iran war. But a Trump administration spokesperson said the administration has no plans to ban exports of oil or natural gas products.

It's important to note that there is an old adage in Washington, D.C.: "Nothing is true until it is officially denied." The administration has probably discussed such a ban. Whether it will implement one is the question. With exports of distillate fuels (which include diesel and fuel oil) hitting the highest on record and gasoline exports bouncing between about 750,000 and 1 million barrels per day, American consumers may be wondering why the administration doesn't act now.

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The oil industry has always enjoyed the right to export refined products such as gasoline and diesel. The U.S. has refinery capacity in excess of its needs, and so the industry has sold the excess abroad. Only more recently did the industry gain the unfettered right to export crude oil and natural gas, arguing that nearly every other American industry has the right to sell its products to the highest bidder across the world. Why should the oil and gas industry be singled out? Well, it no longer is, and it's been that way for more than a decade.

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To implement an export ban, the president would have to declare an emergency. It's not hard to see how the closing of the Strait of Hormuz by Iran would be seen as an emergency. But it's not clear how much such a ban would lower prices. It depends on whether such a ban included refined products such as gasoline and diesel and not just crude oil. As it turns out, not all oil is the same. The United States produces more than it needs of what is called light sweet crude ("sweet" because it is low in sulfur content, a pollutant that must be removed) and less than it needs of what is called heavy sour crude (which, not surprisingly, has higher sulfur content).

U.S. refineries are set up to use a certain mix of light and heavy crude; hence we export some light crude and import some heavy crude to get the right supply of both. Therefore, restricting exports of light crude won't help refineries make more finished products since the key to that is having the aforementioned right balance of light and heavy crude.

My guess is that unless gasoline and diesel prices remain elevated for months more, export controls will remain off the table. But if the high prices don't dissipate by then, the American public will be clamoring for a solution. Don't be surprised if the opposition party starts pounding the table for some type of export restrictions in order to score some points with the public and against the president.

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