As Gas Prices Rise, Should The U.S. Oil Industry Stop Exporting?

by Don Azarias
June 1, 2012
If you are now feeling the pain in the pump as you fill up your vehicles’ gas tanks, let me tell you that it’s still nothing yet compared to the misery that awaits us, the motoring public, in the coming days ahead.
At the same time that the price of gasoline is rising, the U.S. oil industry is increasing its exports of gasoline, diesel, and jet fuel. Yes, you read that correctly. And, like you, I find it hard to believe given the situation we have in this country. What’s more scary is that President Barack Obama and those lawmakers on Capitol Hill are not doing anything to prevent the oil industry from doing something that may hurt the fragile U.S. economy. While it’s true that Obama’s hands are tied and can’t arbitrarily intervene in an industry that’s operating under the free enterprise system, some experts believe that he might be able to halt the exports using the war powers act, much like the United States did during World War II.
According to Christian Science Monitor, compared to a year ago, exports of gasoline have tripled—at a time when the price of gasoline is 42 cents a gallon more expensive at the pump. As of this writing, the price of crude oil remained elevated at $107 a barrel because of fears over the Iranian nuclear situation, with the price of gasoline rising almost every minute of the hour.
The oil industry says if refiners could not send American-made gasoline to China, India, Europe, and South America, the refineries would have to close as several have already done on the East Coast.
I completely disagree. I do believe that, given the situation at a time of rising prices, further exportation of gas and other oil products will only make the state of U.S. economy even worse.
“The United States is considering a release from its strategic oil reserves,” said Treasury Secretary Timothy Geithner, acknowledging the harm that supply disruptions from Iran could have on the global economy. “There is a case for the use of the reserve in some circumstances and we will continue to look at those and evaluate that carefully. Obviously, Iran can do a lot of damage to the global economy. We are working very carefully to try to minimize that risk, make sure there are alternative sources of supply from Saudi Arabia and others to help compensate for reduced exports from Iran,” he added.
Geithner’s stance has the support of a handful of Democratic lawmakers saying that the White House should consider tapping into the Strategic Petroleum Reserves (SPR) again to send a message to Iran that the United States has other alternatives in dealing with the crisis.
I am personally opposed to this because this step is not geared toward a long term solution to the oil shortage.
The United States and its Western allies are pressuring Iran to dismantle and abandon its nuclear program. While there’s no sign that Iran will capitulate, the rising tensions between Iran and the West have fueled a rise in oil prices, pushing benchmark Brent crude above $125 a barrel in the latest trading.
The United Nations’ nuclear watchdog, the International Atomic Energy Agency (IAEA), warned that Iran has sharply stepped up its uranium enrichment drive. The IAEA report was seen as inflaming fears in Israel, which has threatened pre-emptive strikes on Iran’s nuclear sites to stop it from pursuing its nuclear ambition.
The fear of tightening supplies, exacerbated by a threat from Tehran to close the Strait of Hormuz —the main Gulf oil shipping lane—have driven oil prices higher, putting political pressure on President Barack Obama, who is running for re-election in November. He is being urged by Republicans and even Democrats, to take steps to keep gasoline prices down to preserve the U.S. economic recovery. U.S. consumers have seen the price of fuel jump nearly 9 cents in the past week to an average of $3.61 a gallon. The cost is expected to rise further toward $4 or higher through the summer driving season.
The issue of US gasoline exports could become controversial if they continue through the summer when average gasoline prices are expected to be even higher than the current price which is $3.61 a gallon according to AAA. By this summer there are some predictions gasoline prices could eclipse the old record of $4.11 a gallon set in July of 2008 and perhaps peak closer to $4.50 a gallon.
“I don’t think there are any powers the president has that allow him to do that by statute or otherwise,” says Charles Ebinger, director of the Energy Security Initiative at the Brookings Institution in Washington. “I guess behind the scenes he could jawbone the industry to ask them to stop exporting for the good of the nation.”
Mr. Ebinger says the oil industry might want to scale back the exports since “it’s not the best public relations in the world to export when prices are rising at home.”
“First of all it is a very small amount,” says John Felmy, chief economist for the American Petroleum Institute (API), which lobbies for the oil industry in Washington. Mr. Felmy estimates exports represent 4 percent of total US gasoline production. He says the exports are helping some in the refining industry stay in business since they have been buying expensive crude at the same time that domestic demand has been declining.
Personally, I’m having problem accepting the fact that “domestic demand has been declining.”
“They are losing money on every gallon they sell and they can’t make it up on volume. But people are willing to pay higher prices for gasoline on the international market. That demand has resulted in record production from the Gulf Coast, most of it exports,” Felmy added.
Ben Brockwell, director of data marketing and information services at the Oil Price Information Service, which provides petroleum pricing and information to the oil industry, had this to say: “I think it is simply disingenuous to think exports of gasoline are not a factor in the prices.” Brockwell thinks it would probably take some kind of legislation from Congress to cut off the exports. “I guess Congress could institute some kind of tariff or fee,” says Brockwell “I’m not sure if you could do it by executive order.”
Meanwhile, the oil industry maintains the exports are necessary because domestic demand is weak.
The “domestic demand is weak?” Like a vast majority of the Americans, I find it hard to believe. Of course, being in cahoots with the powerful oil market speculators, they can always present certain scenarios that are favorable to them. And the chaos created often produce disastrous results that impact not only the American consumers but also the nation’s economy.
It seems like the oil industry is not only good at manipulating oil prices; it’s also good at insulting people’s intelligence.