A proposed ban on exports of crude oil from the United States probably will neither reduce gas prices for US consumers, nor have an appreciable effect on the global demand for or price of oil.
Last month, Senators Tammy Baldwin (D-WI), Tammy Duckworth (D-IL), Jack Reed (D-RI), and Jeanne Shaheen (D-NH) sent letters to President Joe Biden to urge limits on exporting crude oil from the United States. Representative Frank Pallone (D-NJ), chair of the House Committee on Energy and Commerce, did the same. Their idea was that reinstating an export ban on US oil will result in lower gasoline prices. Policymakers several years ago likewise considered reinstating an export ban on US oil with the same goal of reducing gasoline prices. But, given the evidence from modeling and simulations, we know now, as we knew years ago, that changing the export regulations on US oil will not have an appreciable effect on reducing gasoline prices for consumers.
Studies in 2015 by Resources for the Future (RFF), the US Energy Information Administration, and National Economic Research Associates all concluded that allowing exports of US oil by removing the export ban—which existed at the time—would not lead to increases in US gasoline prices. In fact, research at the time concluded that allowing US oil exports would be economically beneficial for the United States. In particular, these studies showed that the exports primarily would consist of light oil, for which refinery capacity in the United States is limited. Hence, the United States would be exporting oil to other countries that have refineries which can handle light oils, making the whole system more efficient. For these reasons, and as part of a political agreement that granted tax benefits to wind and solar energy projects, the export ban on US oil was removed at the end of 2015. Since then, US gasoline prices have followed global prices, and the removal of the export ban has not adversely affected US consumers.
US national security has significantly improved, too, if we measure national security as low dependence on foreign oil. Recently, the United States became a net exporter of petroleum and its products. In 2015, the United States imported a net 4.7 million barrels of petroleum and petroleum products per day; in 2022 through April, net exports were 874,000 barrels per day, reversing the oil trade balance. And in the period between 2015 and April 2022, crude oil exports per day increased by 2.77 million barrels. This shift in the oil trade balance has led to increased revenues from oil exports and increased GDP in the United States. Specifically, the projected sum of the oil export revenues and US GDP for 2022 would be $38.2 billion, derived by taking the average Cushing stock price for 396 million barrels of exported oil in the first four months of 2022 and estimating the value for the entire year by multiplying the four months’ worth of stock value by three.
Beyond the United States
If the United States had not increased its production of oil, other countries undoubtedly would have increased their own production to satisfy the global demand for oil. Overall, US exports of petroleum have had a small impact on reducing the price of oil; however, the slightly lower prices probably have not resulted in significantly higher oil production at the global level to meet the higher demand. The demand for oil from developing countries, which was 49.3 million barrels per day in 2015, has increased now to 53.7 million barrels per day and is projected to reach 58.3 million barrels per day by 2026. Demand from the 37 member countries of the Organisation for Economic Co-operation and Development, however, called for 47 million barrels per day in 2015, decreased slightly to 45.8 million barrels per day as of April 2022, and is projected to remain at 45.8 million barrels per day through 2026. These changes in demand play a much more significant role in affecting the global oil price than any increases in exports of US petroleum.
A January 2022 article by economists at the Federal Reserve Bank of Dallas summarizes the argument against reinstating an export ban: “ … the prices of gasoline and diesel in the United States are determined by their prices in global markets since the United States trades diesel and gasoline. Because a cessation of US crude-oil exports would lower the supply of oil in global markets and raise its price, one would expect global fuel prices, if anything, to increase as a result … In other words, the prices of gasoline and diesel fuel in the United States would not be expected to decline and might actually increase, rendering the crude-oil export ban not only ineffective, but also counterproductive.”
Beyond Gasoline Prices
Reducing greenhouse gas emissions is a major global challenge that has to be addressed along with demands for improved standards of living across the globe. Meeting such demands requires increased energy production. Until renewable or other alternative energies are widely available at prices that developing countries and others can afford, demand for petroleum and other fossil energy sources will persist. Whether or not the United States is exporting crude oil, demand for oil will persist in the current context.
Economists generally agree that the most cost-effective way to reduce greenhouse gas emissions is to put a price on such emissions, which incentivizes products that consume and produce less carbon. Putting a price on emissions, and recycling the funds within the US economy, would have limited, if any, negative impacts on GDP in the United States. Putting a price on emissions would enhance national security by reducing US demand for foreign oil and serve as a much more cost-effective way to address the greenhouse gas implications of petroleum exports than an export ban on crude oil.