What will the global oil market look like in 2016? This year is closing out with the industry in turmoil. The price of oil is hovering in the mid-$30s a barrel, supplies are swamping the market, the U.S. is on the cusp of ending its decades-old oil-export ban, and geopolitical rivalries continue to sow uncertainty.
The lifting of the U.S. ban on crude exports is likely to be part of the omnibus spending bill Congress is working on this week, one the White House signaled it is inclined to sign. This important step reflects recognition of the new reality in world oil: the U.S. shale revolution and its impact on global markets. Although it would have seemed unthinkable only a few years ago, the U.S. has shot up to rank as one of the “big three” petroleum producers, along with Russia and Saudi Arabia.
Ending the export ban, a relic of the 1970s, will help eliminate the discount on domestic crudes that has been hurting U.S. producers. But it is highly unlikely to increase prices at the pump because U.S. gasoline prices key off the global crude price, not the domestic one.
Among the advocates for lifting the ban have been the European Union and Japan. It isn’t that they expect the volume of American exports to be high, but rather that these exports will further diversify the global market and thus contribute to energy security. Had the ban remained in place, the EU would have insisted on it being one of the key issues in negotiating a new U.S.-EU trade agreement. Maintaining the ban also would have left unanswered a most perplexing question posed by Sen. Lisa Murkowski, chairman of the Senate Energy Committee, earlier this year: Why remove sanctions on Iranian oil as part of the nuclear deal, but leave “sanctions” on U.S. oil exports?
With prices in the mid-$30s a barrel, the Gulf countries, led by Saudi Arabia, continue to say that they would consider cutting output, but only if others do the same. There is little sign of that happening. Venezuela, an OPEC founder, rails against the market-share strategy and stridently calls for production cuts. But it might as well be talking to the wall. President Nicolas Maduro’s socialist government, defeated this month in parliamentary elections largely due to gross economic mismanagement, has no ability to make cuts.