My, How Things Change ... A World Awash in Oil ... U.S. as an Oil Exporter

Oil prices dropped nearly another 3% today due to lower demand and greater supply. Funny how the law of supply and demand always works out that way, isn't it?

Oil settles below $95, at more than a one week low says this:

"Oil futures sank Wednesday, as a sizable climb in last week's U.S. supplies and a slowdown in growth of private-payrolls combined to push prices below $95 a barrel. May crude  fell $2.74, or 2.8%, to settle at $94.45 a barrel on the New York Mercantile Exchange. That was the lowest settlement for a most-active contract since March 22."

And it very much looks to me like this supply demand situation is likely to continue to drive down energy prices for quite some time. Assuming that's the case, it should provide a nice boost to consumer buying power and demand this spring and summer, and that in turn will augur well for U.S. economic activity and jobs.

And even more surprising, the U.S. is also capable of becoming a major exporter of oil and natural gas, assuming politics doesn't prevent us from doing so. Lots of good possibilities on the energy front.

Who'd a thunk it? Just when the economy shows early signs of softening again this spring, oil prices have started to tumble. Thus, the good news is that gasoline prices may be falling instead of increasing as we enter this year's important spring and summer seasons. Now that would be both different and a welcome change from past years.

But will the the U.S. become an oil exporter? And will gasoline prices drop to under $3 per gallon?

Could it really happen? Well, as a matter of fact, yes it could.

And if it does, that would be a great thing for the U.S. economy, jobs, consumer demand, avoiding inflation and our U.S. national security as well.

All we need now is for the politicians to do the right thing, which of course is never a sure thing. But there's hope.

Oil Exports Get Second Look is subtitled 'As Domestic Output Rises, Industry Weighs Push to Ease Ban Dating From '70s:'

"The U.S. energy industry is suddenly talking about something that was unthinkable a few years ago: exporting crude oil.

Congress largely barred such exports after the 1970s Arab oil embargo in a step to protect U.S. oil supplies. But with domestic production booming, energy-company executives are questioning whether the U.S. needs every drop of petroleum it extracts.

"We live in an interconnected, mutually dependent world that needs free trade," Ryan Lance, the chief executive of ConocoPhillips, said. This should include, "at some point, even exports of oil," he added.

Opponents of the idea counter that allowing exports could push up prices at the pump for consumers and businesses, and make the U.S. more dependent on foreign oil.

Some energy executives say exporting oil would solve a problem faced by U.S. refineries. America is producing more and more of its light, sweet crude, but a majority of U.S. refineries are set up to handle the heavy oil from Latin America and elsewhere that has more sulfur and is harder to process than light, sweet crude.

But any export plans are likely to meet stiff resistance—from those who want the U.S. to keep reducing its dependence on foreign oil, and from refiners that can process and profit from relatively cheap U.S. crude. Bill Day, a spokesman for Valero Energy Corp., one of the largest independent refiners in the U.S. and a major buyer of domestically produced oil, said the company is carefully monitoring the issue.

Public support is also unlikely, some analysts say. Crude makes up 72% of the price of gasoline, and oil companies will be hard-pressed to explain why the U.S. is sending its growing oil bounty abroad and not lowering pump prices at home, said Mike Kelly, an analyst at Global Hunter Securities.

The House Energy and Commerce Committee expects to hold hearings in the spring on the feasibility of potentially exporting oil and gas. But some House Democrats are calling for more restrictions on possible oil exports. Reps. Ed Markey (D., Mass.) and Rush Holt (D., N.J.) introduced legislation last month that would allow the federal government to accept bids to drill for oil on federal lands only from companies promising to sell it within the U.S.

"American oil should be kept here to benefit our consumers, not shipped to Europe or Asia to help boost oil-company profits," Mr. Markey said.

The U.S. is expected to pump 9 million barrels of light, sweet crude a day in 2020, almost double the 4.6 million barrels a day in 2011, according to consultancy Turner, Mason & Co. Meanwhile, America's capacity to refine that kind of oil is expected to increase only slightly to 8 million barrels a day from the current level of 7.7 million barrels a day, the firm said.

Refining capacity's inability to keep up with production in some areas has occurred "faster than Washington is prepared to acknowledge," said Ed Morse, global head of commodities research at Citi Research.

The oil-exports debate could mirror the one the energy industry has had over the export of liquefied natural gas. Producers have been clamoring for U.S. government permission to sell such gas overseas, where prices are much higher than in the U.S.

But Dow Chemical Co. and other companies have said exports would raise natural-gas prices at home and hurt U.S. manufacturers. The Department of Energy is expected to make a decision on natural-gas exports later this year."

 

Summing Up

 

Oil is a global commodity, regardless of popular opinion.

 

And increasing global supply is good for lowering oil prices, regardless of what the politicans say or what people may choose to believe. It's a simple matter of the law of supply and demand at work.

 

If we export more oil, the exporters will make greater profits and pay more taxes to the U.S. government. Similarly, if we refine more oil, the same result will occur. And if we use more oil domestically that we produce domestically, our costs will be lower due to lower transportation costs. There is no legitimate reason to curtail the export possibilities of either domestically produced natural gas or crude or refined oil.

 

And that's true regardless of what the politicians or self serving business customers may say. Free markets work when given a chance. We should have learned that simple lesson long ago.

 

That's my take.

 

Thanks. Bob.