US Export Ban Likely to Backfire, Market Players Say

The Biden administration continues to turn over rocks looking for ways to blunt the steady ascent of gasoline prices, which could reportedly include a limit or ban on some oil exports.

But such a move would likely backfire, several market players told Energy Intelligence.

Against a backdrop of a nationwide average gasoline price cresting $5 per gallon, some administration officials are now considering curbing exports of refined products, Bloomberg reported Thursday. It’s not yet clear whether the administration believes the policy is worth advancing, with one official saying the idea isn’t yet being seriously considered.

The idea would be that eating into product exports — which are currently some 6 million barrels per day, per the US Energy Information Administration (EIA) — would make more fuel available at home and put pressure on domestic prices.

However, traders, shipbrokers, refiners and analysts say it would do precisely the opposite.

“It’s a 'verkakte' idea,” said one shipbroker, who explained that such a move would have immediate, unintended and yet foreseeable consequences.

For one thing, cutting off or limiting US exports would exacerbate global tightness in the market, resulting in higher prices worldwide.

“World demand won’t go down, and all of a sudden Latin America and Europe will be starving for product [and will] bid up prices and that will make its way to the US,” said John Auers, vice president of consultancy Turner, Mason and Co. He echoed that enacting such a ban would have “immediate and catastrophic” consequences.

A potential cap on exports is already worrying some US allies, who warily eyed recent remarks from US Energy Secretary Jennifer Granholm that “all options are on the table” when asked about an export curb. Europe in particular is looking to replace roughly 3 million b/d in crude and product imports from Russia by year’s end, and the US is a key alternative supplier.

Foot in the Crosshairs

A product export ban would also likely cause domestic fuel prices to rise.

The US currently imports roughly 570,000 b/d of gasoline and blending components, according to the EIA, with much of that going to high-demand markets such as the US Northeast.

“All banning exports would do is raise prices on the Atlantic Coast, because global prices will rise and the US is still an international player,” the shipbroker said. “You’d have the US Northeast competing with Europe for cargoes from the US Gulf.”

The US East Coast — also known as Padd 1 — is a key market for gasoline but is also short refining capacity. Access to fuel produced on the US Gulf Coast is constrained to the Colonial Pipeline system and Jones Act-compliant tankers, which must be US built, owned and crewed.

That makes the US East Coast heavily reliant on imports, particularly from Europe. In 2019, prior to the pandemic, Padd 1 imported 1.1 million b/d of products, and that figure climbed to 1.2 million b/d in 2021. Padd 1 is also home to the New York Harbor, where Nymex gasoline futures are priced.

Auers added that limiting or banning exports would have direct impacts on refiners themselves, given how much of their current market is overseas.

“You’d see significant capacity shutdowns in the US," he said. "They’re exporting so much, and all of a sudden that demand goes away and US demand isn’t picking up."

However, he added that he expects such shutdowns would likely be temporary, given that any policy limiting exports would backfire so quickly it would almost immediately be overturned.

Prodding Refiners

President Joe Biden also sent a letter this week to domestic refiners, urging them to increase output. Biden acknowledged that downstream capacity is strained, but he criticized the high margins refiners are earning amid that tightness.

Auers said there is virtually nothing that refiners can do, however.

“They’re already running as hard as they can," he said. "If they run any harder they could face unplanned outages."

Granholm plans to hold an “emergency meeting” with refiners next week, a spokesperson for the US Department of Energy said.