US gasoline prices will fall 9-12 cents/gal and prices elsewhere in the world will fall 10-13 cents/gal if current US restrictions on oil exports are dropped next year, a leading Washington think-tank said Tuesday.
"The more the US exports crude oil, the greater decline in gasoline prices," the study from The Brookings Institution's Energy Security Initiative claimed. "As counterintuitive as it may seem, lifting the ban actually lowers gasoline prices by increasing the total amount of crude supply, albeit by only a modest amount."
Brookings' finding are nearly identical to those of a May study from energy consultancy IHS which concluded that free trade of crude would cause US gasoline prices to fall 8-12 cents/gal due to the close link between gasoline and world oil prices.
Like IHS, the Brookings study claimed the impact of crude exports on gasoline prices dulls over time, falling from a 9-12 cent/gal drop in 2015 to 0-10 cents/gal by 2025.
The studies come amid growing debate on Capitol Hill over lifting crude export restrictions as the production of light tight oil nears US refining capacity, a point Brookings refers to as a "day of reckoning."
"When that day comes, there will be pressure on the United States to act, to avoid the self-inflicted harm of artificially constraining crude oil exports," it said.
Overall, the study found the elimination of crude export restrictions would increase US production, increase diversity in the world's oil supply and provide a host of US economic benefits, from improved GDP to reduced unemployment.
In addition, if these export restrictions remain in place "US production will not reach its full potential," Brookings said.
The study looks at both the impact of allowing all crude exports and loosening restrictions to allow only export of condensate, which it defines as crudes with an API gravity greater than 49.
If all restrictions were dropped, for example, crude exports would climb by 1.7-2.5 million b/d in 2015 to between 1.6-4.2 million b/d by 2025.
If only restrictions on condensate are lifted, crude exports would climb between 700,000-1 million b/d in 2015 and 700,000-1.4 million b/d in 2025.
'SCARCITY MINDSET'
Similarly, while gasoline prices would drop by 9-12 cents/gal in 2015 and between 0-10 cents in 2025, gasoline prices would fall by only 4-6 cents/gal in 2015 and 0-3 cents/gal by 2025 if only restrictions on condensate exports are dropped, Brookings said.
"Allowing US producers to connect to global price signals will generate expansion of US oil production, securing self-sufficiency in light grades of oil," the report said. "As US LTO becomes competitive once it is allowed to be marketed on the world market, gasoline prices in US on average fall, and in turn the US is able to take a commodity [currently price discounted] into a vibrant economic resource for the country."
In addition, the Brookings report claimed average crude oil prices in the US will increase by $2.17-$2.44/b in 2015 and $2.17-$6.04/b in 2025 if all restrictions on crude exports are dropped. The increase in crude prices would be 48-70 cents/b in 2015 and 46 cents-$1.55/b if only condensate exports are allowed.
The steepest hurdle to overcome to liberalize crude exports may be the long-standing "scarcity mindset" from consumers and some members of Congress who fear shipping US crude overseas will lead to a domestic shortage and an increase in gasoline prices, Brookings said.
This mindset is misplaced since the US has not seen a physical scarcity of oil after 1973, but shortages causes by "price and allocation controls that created a false and self-inflicted sense of vulnerability," it said.
"With such a mindset, which has been ingrained over 40 years, it is exceedingly difficult for the public to grasp the possibility that the United States can export crude oil without endangering national security or economic prosperity," Brookings said.
