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Are U.S. Crude Oil Exports Around The Corner?

|Includes:BAC, EPD, Pioneer Natural Resources Company (PXD)

The debate on whether or not the U.S. should export its surplus crude oil has certainly been one of the most engaging policy debates this year. Growing crude oil output in shale formations such as the Eagle Ford has led some policy makers to push for exports, arguing that there is sufficient domestic surplus to justify lifting the four decade long crude oil export ban that was set in response to the 1970's Arab oil embargo.

Getting Off On Technicalities

Despite the mounting pressure to lift the ban, U.S. refiners have stood firm in their unwavering opposition to the move. U.S. refiners, who have long enjoyed lower feedstock costs due to lower domestic crude oil prices, have offered cogent arguments elaborating the upward effect that lifting the export ban will have on the price of gasoline and other refined products. These arguments have certainly weighed on the call to export the surplus crude oil. This is largely because it is an election year and the pricing argument resonates well with the electorate.

However, even in the face of strong opposition, the proponents of lifting the ban are making some headway. The U.S. Department of Commerce recently approved the exportation of condensates by Pioneer Natural Resources (NYSE: PXD) and Enterprise Product Partners (NYSE: EPD). Technically, condensates do not fit into the text book definition of crude oil as they are processed up to a level that runs short of refinement. Notwithstanding, they are not refined products either and need further processing before use. Exporting condensates-which fall in a technical and semantic gray area with regard to being crude oil or refined products-signals the first step in getting past the crude oil export ban.

New Developments Heighten Chances

In addition to the approval of condensate exports, new developments within and outside of the U.S. heighten the chance that the U.S. may soon begin exporting its surplus crude oil. The International Energy Agency (IEA) in 2013 projected that the U.S. would surpass Saudi Arabia and Russia to become the world's top energy producer by 2015. The U.S., however, seems to have outdone itself. It toppled Russia and Saudi Arabia in the first six months of 2014, with daily output exceeding 11 million barrels in the first quarter of the year. This is according to several reports, including one from Bank of America (NYSE: BAC) and another from IEA

The U.S.'s newly found energy dominance bolsters the case for exportation. This is because U.S.'s output is increasing against the backdrop of possible supply shocks in key producing states such as Iraq. Iraq, which is the second largest OPEC producer, may face supply constraints depending on the direction which the ongoing conflict with Islamic militants takes.

Policy makers may placate the Obama Administration to lift the crude oil export ban by modeling the expected supply gaps in the global market as opportunities for America.

Moreover, the increased adversarial stance that Europe has taken against Russia over the conflict in Ukraine may prompt Russia to make good its threat of cutting gas supply to Europe. If this happens, the U.S., which is already facing pressure from several European countries to expedite the approval of natural gas export terminals, may start the exportation of natural gas to allied European states. Besides European countries, several U.S. legislators have also called for the quicker approval of natural gas export terminals, including House Speaker, John Boehner, who previously called Russian President, Vladimir Putin, "a thug", saying that President Obama "ought to stand up to him (Putin) and better protect America's interests and our allies, especially in Eastern Europe." Boehner was speaking in an interview on NBC's Tonight Show with Jay Leno earlier in the year.

If the U.S. starts exporting natural gas to her allies in Europe, it is only likely that plans to offload some of its surplus crude oil to the European market will be approved.

Emerging Growth Takeaway

The arrangement of all these disparate elements-condensate exports, possible global supply deficit, need to reach out to European allies in time of need, and growing U.S. output-bolsters the case for lifting the U.S. crude oil export ban. A major shift in U.S. energy policy could be on the horizon.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Stocks: PXD, EPD, BAC