Thread by @thelykeion

A brief history of the US #Oil Export Ban and subsequent lifting in '15

With gas prices recently breaking ATHs, ‘the ban’ will likely be a heated topic going forward… likely once the energy secretary figures out just how much oil the country she represents consumes 👀
1/21

From ‘50 to ‘57, US production of crude increased by 33% while imports doubled as new cheap oil from the ME reached the market. Concerned about the nation’s growing dependence on imports, Congress authorized the Mandatory Oil Import Quota Program in '59, restricting imports. 2/21

From '59 until '70, domestic crude oil production increased by 2.6 mbpd, and net imports of oil increased by 0.4 million barrels per day. In '70, annual oil production peaked at 9.6mbpd. The program ended in '73. 3/21

The 70s were a pivotal decade for the U.S. oil market. Although U.S. consumption was growing, production was beginning to decline. As a result, net oil imports rose significantly after the import quotas were relaxed. 4/21

In ‘73, the Organization of Arab Petroleum Exporting Countries proclaimed an oil embargo against the US, leading to dramatic changes in the market. The embargo removed 5mbpd, sparking fears about an energy shortage as domestic supply was not expected to keep up with demand. 5/21

In response, Congress passed the Emergency Petroleum Allocation Act of ‘73. The EPAA restricted exports by subjecting them to regulation and licensing. It also extended ‘71 policies on domestic oil price controls but left imported foreign oil prices unregulated. 6/21

To further strengthen export restrictions, the Energy Policy and Conservation Act (EPCA) of ‘75—aka the crude oil export ban—was signed into law. The EPCA effectively banned exports of crude but gave the president discretion to allow exports that were in national interest. 7/21

As a result of both the OAPEC oil embargo and the EPAA’s price controls, the price of US crude oil fell below international prices and domestic production slowed. To keep up with demand, crude oil imports doubled from ‘73 to ‘77. 8/21

However, demand/imports fell from ‘78 to ‘83 when the Iranian revolution led to a loss of production and a subsequent increase in prices. 9/21

In response, Reagan removed the EPAA’s price controls in ’81, which allowed domestic production to increase slightly, but demand continued to fall. By ‘83, imports had fallen back near their ‘73 level. 10/21

From ‘75 to ‘08, US production declined by almost 50% and the US became the world’s largest oil-importing country. Specifically, US imports of crude increased from 1.3mbpd in ‘70 to more than 10 mbpd in the late ‘00s, exceeding its ‘70s peak. 11/21

Over the same period, US exports averaged only 0.1mbpd. Due to falling production, the export ban had little discernible effect and was basically a nonbinding restriction on US exports. 12/21

However, the shale oil revolution (advances in technology such as horizontal drilling and hydraulic fracturing) dramatically changed US oil market conditions. 13/21

US production rose back to its ‘70s highs. From ‘08 to ‘15, production increased by 4.4mbpd, and in ‘15, annual domestic oil production reached 9.4mbpd, its highest level since ‘72. 14/21

This dramatic increase in a short time brought significant challenges, as neither the transportation system nor refineries were prepared. The ban only aggravated things, as producers could not export their abundant oil except to Canada, distorting prices and oil flows. 15/21

From ‘11 to ‘14, production increased on average by over 0.8mbpd, nearly 6x the average yoy increase from ‘08 to ‘11. This accelerated increase was due in part to high and stable oil prices, which helped boost production from high-cost shale fields. 16/21

Notably, almost all of the increase in oil production from ‘11 to ‘15 was in light grades coming largely from shale oil formations. Production of heavy crude oil was mostly flat throughout this period. As of ‘15, light crude oil accounted for about 72% of total production. 17/21

By ‘11, the glut had created a sizable discount in prices for #WTI relative to coastal crude oil such as LLS, which was not subject to the same transportation constraints. The discount relative to LLS reached as high as $27 per barrel, far exceeding the historical discount. 18/21

Even after transportation constraints eased, the mismatch between refinery configuration and domestic crude production, combined with restrictions on oil exports, distorted the market and added to existing inefficiencies. 19/21

Consequently, producers pushed for a repeal of the export ban, arguing that allowing exports would help eliminate the domestic price discounts. Increasing production dialed up pressure on lawmakers but it was a persistent drop in prices that triggered its ultimate removal. 20/21

In December '15, Congress passed a bill authorizing oil exports as a component of a larger spending and tax measure.

Importantly, it also included a provision allowing the president to restrict oil exports for up to one year under certain circumstances.
21/21
#OOTT