The Tell: Here’s how a ban on U.S. oil exports would backfire, according to Goldman Sachs
The Biden administration is under pressure to supplement a U.S.-led release of strategic oil reserves by reinstating a ban on crude exports. But that would likely backfire, warned analysts at Goldman Sachs.
The analysts, in a Tuesday note, argued that the release of crude reserves was also likely to prove ineffective, reiterating its view “that such government intervention is not the solution to higher oil prices that are required to overcome the slow supply response of producers.”
President Joe Biden on Tuesday announced that the U.S. would release 50 million barrels of crude from the Strategic Petroleum Reserve, while China, India, Japan, South Korea and the U.K. would also release oil from their stockpiles. Oil futures, which had retreated in recent weeks from seven-year highs set in October, bounced higher on Tuesday as traders faded the long-anticipated move.
Commodities Corner: Why oil prices jumped despite the U.S. tapping the Strategic Petroleum Reserve
Meanwhile, some Democratic lawmakers have called for reinstating a ban on crude exports, at least temporarily. A 40-year-old ban on nearly all U.S. crude exports was repealed in 2015.
Why would a ban backfire? The U.S. exports 3 million barrels a day of crude. Domestic pipelines would be unable to reroute that crude to U.S. refiners, who don’t have enough capacity to process it, the analysts said.
“This would leave excess U.S. crude supply quickly reaching tank tops and forcing shut-in production, with investment and production soon to enter significant declines,” they wrote.
At the same time, the global market would be deprived of 3 million barrels a day of U.S. supply, made up largely of light sweet crude that “Brent-like” in quality, they said, which means Brent prices would need to spike to push demand lower as there isn’t a enough spare capacity, or suitable crude, to replace those lost U.S. exports.
And that would lead to a jump in gasoline prices — a key political concern for the Biden administration.
See: Biden vows gasoline prices will drop ‘before long’ but not ‘overnight’ as he orders oil-reserve release
That’s because with the U.S. an importer of gasoline from Europe, prices would need to spike to curtail domestic demand, creating a negative hit to U.S. economic activity, they said.
Read: Will Biden administration releasing 50 million barrels of oil lower gas prices? Don’t hold your breath
Oil futures were slightly lower Wednesday, with West Texas Intermediate crude for January delivery
down 12 cents, or 0.2%, at $78.38 a barrel on the New York Mercantile Exchange. Brent crude
the global benchmark, was off 30 cents, or 0.4%, at $81.03 a barrel on ICE Futures Europe.