Crude’s latest tumble may come with a silver lining for the U.S. petroleum industry: it gives oil bosses fresh ammunition in their fight against Washington’s decades-long crude export ban.
Overseas sales restrictions helped push American crude prices below Brent during the shale boom. That was manageable. Now, with WTI, the U.S. benchmark, hitting a fresh six-year low on fears of oversupply, the ban threatens both workers and energy independence.
Signs of higher crude output in the United States and Libya along with speculation about a potential diplomatic breakthrough with Iran appeared to be the main factors pushing crude prices lower on Monday. After recovering somewhat from a more than 50 percent crash starting last June, WTI has fallen 18 percent since mid-February, to around $44 a barrel. Brent, which fell to just over $53 a barrel on Monday, has slipped 14.6 percent over the same period, but remains comfortably above a six-year low of $46.59 set in January.
The gap between the two benchmarks could, perhaps, have crimped domestic industry growth somewhat when a barrel of oil fetched triple digits. But shale extraction was still highly profitable – and new jobs flowed. Shale and other unconventional fuels would account for over 1.5 million U.S. jobs by 2015, including workers employed directly in drilling and jobs created indirectly in the energy and related supply chains, according to a 2013 report by consultants IHS.
U.S. oil companies are currently planning to cut capital spending by up to 36 percent this year compared with 2014, according to announcements tracked by UBS. That would seem to make pink slips inevitable.
Some shale drillers may well change tack were a barrel to sell for $60. That’s the level the most efficient drillers, like EOG, need to justify upping investment. It is, though, 36 percent above the current WTI price, whereas Brent is only 13 percent shy.
Lifting the export ban ought to remove some, if not all, of that disparity. U.S. drillers competing on a level playing field with the rest of the world’s oil producers would not just be able to take better advantage of an eventual recovery in prices. They would also not be as exposed to further pain. Preventing foreign sales is an outdated policy as it is. Ending it is fast becoming a job-saving necessity.