By July 30, 2015 Read More →

Want lower gas prices? Lift American oil export ban – study

Gas prices would be an average of 8 cents per gallon lower if ban not in place

The 1970s-era ban on crude oil exports is artificially keeping American gas prices higher than they should be, says a new report from consultancy IHS Inc.

gas prices

IHS says gas prices are higher than they should be because of oil export ban.

IHS argues that the factors central to determining the gas prices at the pump are different than what many assume. Despite a boom in U.S. crude oil production that has lowered the price of U.S. crudes compared with international crudes, U.S. gasoline prices have, on average, continued to closely follow the international prices for gasoline and crude oil.

“This latest analysis further confirms what IHS research has consistently shown – that the fear that lifting the ban on U.S. crude exports would raise U.S. gasoline prices is unfounded,” said Kurt Barrow, IHS vice president, downstream energy.

The surge in U.S. oil supply has not had more of an impact on prices at the pump because export restrictions on U.S. crude dating back to the 1970s have created a gridlock that prevents additional production from coming to market, the report says.

The new report, Pump Primer: How U.S. Gasoline Prices are Set, builds on the gasoline pricing analysis previously used in a series of comprehensive IHS studies on U.S. crude export policy. The studies found that removing the U.S. crude export ban would actually lower U.S. gasoline prices an average of 8 cents per gallon by encouraging greater U.S. crude production.

All else being equal, a more well-supplied world oil market will put downward pressure on international crude oil prices—and consequently on U.S. gasoline prices.

gas prices

Kurt Barrow, IHS vice president, downstream energy.

“The price of U.S. gasoline tracks global gasoline prices. The reason is fundamental—gasoline is traded openly on the global market unlike U.S. crude. Therefore, global gasoline prices follow international crude prices, not U.S. crude prices,” said Barrow.

The new report incorporates several more months of gasoline price data into the analysis. It confirms that the direct link between international crude prices and U.S. gasoline prices has continued.

For example, the study found that the wholesale price of gasoline in the inland Chicago market continued to track those in other markets in recent years—even as U.S. oil production grew and inland crude prices weakened relative to international crude prices. The gasoline price in that market continued to track prices in other domestic and international hubs rather than weaken with the U.S. crude price.

“Removing the crude export ban would actually lower U.S. gasoline prices by increasing the supply of crude on the global market that is central to determining the price of gasoline the world over,” said Barrow.

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