It’s always fascinating to see how things unfold in this country in terms of politics and money and most recently, oil. For decades, there has been a ban on oil exports. When profits begin tanking, we start hearing the big oil players complain about the unfairness of it all. That complaining has finally resulted in Congress opting to lift the four-decades old ban. On the surface, that’s reasonable; but going a bit deeper, is the cure worse than the ailment?
What Got Us Here?
First, it’s important to know a few of the “minor” details (according to those supporting the lift) that got us to this point. Keep in mind it’s the long term repercussions that are going to haunt us. This is increasingly clear with these latest moves:
Note: I realize a lot of this is not on the evening news. God love the mainstream media – it has its hands full letting us know how many times Donald Trump sneezes over the course of a day. Power on, MSM, power on! (Yes, it’s ridiculous.)
China is one of the world’s biggest oil importers. Sixty percent of the oil it uses is imported from other countries. This is important because:
In October, China will launch its own oil benchmark using its own currency. China and Russia are both ditching the dollar. It will compete with London’s Brent and our West Texas Intermediate (WTI) benchmarks. It has its challenges, according to Reuters, “If China’s crude futures don’t immediately attract enough liquidity and markets are still as volatile as now, then traders could get really burned and would quickly stop trading Chinese crude futures.” If China was in as bad shape as everyone insists, why would it risk the new ploy? Just as the U.S. has manipulated our stock market for years, so has China manipulated its own. Things are never as they truly seem on some Dow ticker.
Last week, I wrote that there was no way OPEC was going to change its tactic on production because it had come too far to back out now (despite those insisting it had no choice but to ease its production). We learned that today not only has it NOT considered cutting production, but it’s getting ready to double down. In its monthly report, it said, “In North America, there are signs that U.S. production has started to respond to reduced investment and activity. Indeed, all eyes are on how quickly U.S. production falls.” Score one for OPEC. This move has annihilated what’s left of the still-expensive U.S. shale industry.
The Export Ban
Those are two very big reasons why many of the oil companies want the export ban lifted. But what happens if this goes through and the ban is lifted?
First, if the Fed finally makes a move and raises interest, it makes the exports moot. The U.S. will not be able to compete with the other countries because it will increase the value of the U.S. dollar. It will also send oil prices tanking yet again – which by now, the damage is so heavy, the exports aren’t going to do much to improve the situation anyway and will likely result in more job losses.
And by the way – how many countries, in this current environment, are going to turn to the U.S. anyway? The Obama presidency has pissed the world off over the past seven years. Iran has wasted no time buttering up other countries to buy its oil when the inevitable lifts of the sanctions occur. And as for us, we’ve spent the past few weeks sweet-talking Greece (yes, Greece) into not allowing Russia in its airspace to deliver equipment to Syria. It’s insane: Russia was Greece’s only “BFF” during the difficult months it faced earlier this year. Do you really think this tiny country is going to say, “Yeah, Obama. No problem” after the love affair it developed with Russia recently? No. The answer is no.
There’s one caveat: there exists a small possibility that even a small rate hike can result in global financial unrest, making oil the least of the world’s problems. The reality is no matter what the Fed does, there are going to be financial repercussions both here at home and around the world.
One recent study released in July by Consumers and Refiners United for Domestic Energy, or CRUDE, finds that the cure of the export is going to be worse than the disease: “Allowing the export of crude would cause domestic gasoline, jet fuel, diesel, and heating oil prices to increase, in addition to other negative impacts like increasing the United States’ trade imbalance.” It also reads, “American consumers and businesses will take a major hit if Congress lifts export restrictions.” You can read the entirety of the report here.
And yes, there are many who say this is simply not true. You may know them: BP, Chevron, Exxon, etc. They care little about what happens to the smaller oil companies, which are opposed to the end of the ban. These smaller American oil companies rely on this ban for their success. This would result in layoffs in an entirely new area of the energy sector that had been somewhat protected over the past year.
Finally, and this is important. We keep seeing the unemployment rate dropping, even though most of us are looking around and wondering who’s finagling the numbers? There’s no way the job market is improving and in fact, it’s deeply troubled, even if the government won’t admit it. Maybe there’s a reason why:
Instead of “laying off” employees, many companies and most certainly within the oil industry, are instead issuing “furloughs”. This results in the same thing as layoffs: it eases the payrolls of struggling companies without it affecting their employment numbers. In other words, they’ve found a way to lay off without cutting the number of employees, which makes Obama happy: he’s vehemently opposed to the entire oil industry anyway, but it’s a win-win for him: he gets to tout the lower unemployment numbers while also keeping up his not-so-secretive dislike of the oil industry. This is going to come back and bite some in the most uncomfortable way possible.
In the end, this export ban being lifted may result in absolutely nothing changing. You don’t make big changes like this in the middle of a crisis, just as you don’t make decisions based on fear. If gas prices indeed begin to climb because of this ban being lifted, you can be sure the consumer “unknown factor” will most certainly reveal itself at the polls next year.