NCPA - National Center for Policy Analysis

U.S. Loosens Longtime Ban on Oil Exports

August 20, 2015

American energy companies will be allowed to trade oil with Mexico which is seen as a significant step to end the export ban on U.S. oil. It will be an exchange of heavy oil extracted from Mexico for light oil produced in the U.S.

Mexico would blend the two types of oil: light and heavy to run its refineries more efficiently. A similar arrangement exists with Canada which send gas and diesel to the U.S.

The laws banning oil exports have been increasingly questioned since record amounts of crude have been extracted from shale formations, creating a worldwide oversupply that has driven prices down. Still, global oil prices are higher than those of the U.S.

This deal shows how outdated the ban has become. Among other things:

  • About 100,000 barrels a day will be exported to Mexico.
  • This swap could lead to the creation of an integrated North American energy bloc.
  • A new market would be opened up for American producers.
  • Many energy economists believe that exporting U.S. crude will help lower global oil prices by expanding the available supply.
  • Countries in Europe and Asia have declared their interest in buying American oil so they don't have to rely on geopolitically unstable producers.

Notwithstanding, some claim that allowing outflows of American oil would push prices up and reduce the available fuel supply.

Source: Christian Berthelsen, Lynn Cook and Laurence Iliff. "U.S. Loosens Longtime Ban on Oil Exports" Wall Street Journal, August 14, 2015.

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