The crude oil export debate is going to hit mainstream headlines in 2015, but have you figured out which side you’re on yet?
First, a bit on how we got to this debate…
The crude oil ban was originally enacted due to Saudi Arabia imposing an embargo after the U.S. started supporting Israel during the Arab-Israeli war.
Once the embargo was in place, the U.S. put a series of export controls on crude oil and natural gas. Congress then put the nail in the coffin after prohibiting exports entirely through several legislative actions.
And the United States soon found out — quite painfully, mind you — that its production had peaked in 1970, beginning a decades-long decline.
Fortunately, the situation has changed somewhat since then…
The advent of the tight oil boom reversed a production decline that was long believed to be irreversible. More recently, oil inventories have been building rapidly since September of 2014:
It’s clear that the 40-year ban on U.S. oil exports feels a bit outdated right now, given the fact that we’re smack dab in the middle of a supply glut.
The debate has even split the U.S. oil industry in two… but who’s on the right side of this argument?
The truth is that both sides are greedy.
And here’s why that’s a good thing…
The OPEC Supply Conundrum
Now that we are mere days away from the next fateful decision by OPEC to adjust output, I can’t help but wonder if anyone doubts OPEC’s resolve to keep its market share (of course I mean Saudi Arabia, so let’s call a spade what it is).
Granted, the idea of U.S. crude hitting global markets undoubtedly keeps young Saudi princes awake at night, drowning their dreams of an oil inheritance in a pool of frack fluid.
The oil cartel may have even stooped so far as to offer Russia a bribe to help keep supply curtailed, with the Russian Energy Minister asking the world’s oil producers to maintain output.
What was the potential payoff? Cold, hard cash. It’s hard to believe that Rosneft inking a $14 billion oil and natural gas investment in Venezuela is simply a coincidence.
OPEC may be able to persuade Russia to hold off from increasing output, but they’ll have a much tougher time bribing U.S. producers.
But is there really only one winner to this debate?
Not necessarily…
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Crude Oil Exports: Mind-Boggling
Last month, one of my colleagues mentioned how Senator Murkowski, who is spearheading the push to lift the U.S. oil export ban, aptly summed up the current export ban: mind-boggling.
Yet this is more than your typical Washington gridlock. As I said above, the oil industry is split on the topic.
It’s a battle of refiners vs. producers.
So which side do you take?
The answer is: both!
There’s no question that refining stocks have been taking full advantage of their access to lower crude feedstock costs. Also helping matters is the fact that this new supply is of the light, sweet variety:
Large independent refiners have given shareholders impressive runs, like Western Refining (NYSE: WNR), which showed investors 35% from early January through the end of March.
Unlike producers, these refiners aren’t weighed down by an export ban:
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As you can see, U.S. exports of petroleum products have jumped 202% since 2004!
But I also told you that this heated debate will have winners on both sides. If and when Senator Murkowski is successful in taking down the oil export ban, producers will once again be able to put their supply on the global market.
These producers haven’t exactly been left out in the cold in 2015. Continental Resources (NYSE: CLR), one of the largest producers in the Bakken/Three Forks play, is up 20% so far this year. Even Pioneer Natural Resources (NYSE: PXD), the second-largest operator in the Permian Basin, ran as much as 30% between early January and April — and that was in spite of the low commodity price environment.
No matter how you play it, there’s always a winner at hand.
Until next time,
Keith Kohl
Check us out on YouTube!A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.
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