Tuesday, December 22, 2015

The Omnibus Deal’s Mixed Energy Bag

The decades-old legislation that prevented American producers from exporting oil is officially overturned — despite previous presidential threats to veto a bill to lift the oil export ban. That’s good policy. However, to get the support of “reluctant Democrats,” the Economist reports, “an additional five years of tax credits for wind and solar power” was part of the package. That’s bad energy policy.
While it will likely be months before the first tanker of crude oil leaves U.S. shores, the benefits of lifting the ban are already being felt as the spread between the global benchmark price, known as Brent, and the U.S. benchmark, known as WTI (for West Texas Intermediate), has shriveled to the smallest in years. Because U.S. crude had limited markets — and the crude being produced by the shale revolution didn’t match what many American refineries needed — its price was forced down to make it more attractive to refineries. At one time the price differential between the two benchmarks was as high as $30 (September 2011). Between 2011 and 2013, the spread has been closer to $10 to $25 a barrel. Once some of the bottleneck of U.S. production was relieved when the southern leg of the Keystone pipeline was opened and limited amounts of light crude were approved for export or swap, the gap began to really shrink. On December 11, the spread was $2.31 per barrel. Once the export ban was lifted, it dropped to only a $1 difference — with a brief blip of WTI being above Brent.

http://spectator.org/articles/65006/omnibus-deals-mixed-energy-bag 

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