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Lifting Ban on Crude Oil Exports Could Lower U.S. Pump Prices, Says Dallas Fed's Economic Letter

For immediate release: July 24, 2014

DALLAS—Lifting the United States ban on crude oil exports could benefit U.S. consumers through reduced gasoline and diesel prices, according to the latest issue of the Federal Reserve Bank of Dallas’ Economic Letter.

In “Crude Oil Export Ban Benefits Some…but Not All,” senior research economist Michael D. Plante finds that lifting the U.S. ban on crude oil exports would alleviate an emerging glut at Gulf Coast refineries of light crude oil, which has sold at a discount for much of the year compared to international prices. The new U.S. oil supplies principally come from shale formations in South Texas and North Dakota.

“Removing the export ban would eliminate a variety of marketplace distortions by increasing the price of crude oil in the interior U.S. to better reflect global levels, leading to a more efficient economic outcome,” Plante writes.

Over time, U.S. crude oil producers would receive higher prices, and they would produce more oil than they would have if the ban were in place, Plante states. With greater amounts of oil available globally, more gasoline and diesel would be produced, reducing pump prices for U.S. consumers.

Some U.S. refiners would be hurt by lifting the ban, Plante says. The export prohibition is likely to keep U.S. crude oil prices depressed relative to global prices, benefiting certain refiners, who can purchase the discounted crude oil.

Retaining the ban might also negatively affect U.S. consumers, Plante notes.

“To the extent that the ban discourages drilling, this limits the potential supply of oil available to be processed into gasoline and diesel, placing upward pressure on retail fuel prices,” he writes.

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Media contact:
Alexander Johnson
Federal Reserve Bank of Dallas
Phone: 214-922-5288
Email: alexander.johnson@dal.frb.org

 

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