On December 18, 2015, President Obama signed legislation into law that repeals the 40-year-old U.S. ban on crude oil exports. Congressional leaders agreed to include provisions to repeal the export ban in the Omnibus spending bill as part of a bargain in which Democrats agreed to the repeal in return for various renewable energy and environmental protection measures. President Obama previously threatened to veto a stand-alone bill to lift the crude export ban, but accepted essentially the same measures as part of the “must-pass” Omnibus spending bill. As a result, foreign markets are now open to producers and traders of U.S. crude oil for the first time in decades.

The Legislation in Context The opportunity to market U.S. crude oil in various foreign markets has been closed since President Ford signed the Energy Policy and Conservation Act in 1975. That statute and its implementing regulations were enacted in response to the oil embargo imposed on the United States by the Organization of Petroleum Exporting Countries (OPEC). Since that time, the United States prohibited the export of domestic and foreign-origin crude unless prior authorization was obtained from the U.S. Department of Commerce, Bureau of Industry and Security (“BIS”). BIS has routinely authorized exports of foreign-origin crude, as well as exports of U.S.-origin crude to Canada. However, BIS has never authorized the export of domestic crude to countries outside of North America.

Calls to lift the crude export ban became more frequent after U.S. supplies increased dramatically—driven by technological advances in the drilling and extraction of “tight oil” (generally light sweet crude). These advances led to a domestic production “boom,” particularly in Texas (Eagle Ford and Permian Basin formations) and North Dakota (Bakken formation). In fact, the Energy Information Administration (“EIA”) reported that U.S. crude production (including lease condensate) rose from 5.6 million barrels per day (b/d) in 2011 to 8.7 million b/d in 2014. EIA’s August Short-Term Energy Outlook forecasted that production in 2015 would be as high as 9.4 million b/d, with a dip to 9.0 million b/d in 2016 because of low oil prices. The overall surge in domestic supply has alleviated, for many, the national security concern over access to oil that reached its apex in the 1970s.

The Statutory Text Language to lift the crude export ban is contained deep within the 2009-page Omnibus spending bill (page 1865, Division 0, Title 1, Sec. 101). The language adopted provides expressly for the “repeal” of the Energy Policy and Conservation Act of 1975, and further states that “no official of the Federal Government shall impose or enforce any restriction on the export of crude oil.”

This broad language is accompanied by two important carve-outs. First, a savings clause makes clear that this language does not diminish the president’s authority to restrict crude oil exports to sanctioned countries, entities, and individuals. Second, an exception authorizes the president to once again “impose export licensing requirements or other restrictions” on crude exports for up to one year (although this term is renewable) when the president and the secretary of commerce find that crude oil exports have “caused sustained material oil supply shortages or sustained oil prices significantly above world market levels that are directly attributable to the export of crude oil produced in the United States.” The president must also find that such supply shortages or price increases are likely to “cause sustained material adverse employment effects in the United States.” Under this new statutory scheme, the president has the authority to act quickly, without additional authorization from Congress, to avert shortages like those experienced in the 1970s.

Impact of Lifting the Crude Export Ban The long-term impact of lifting the crude export ban is not certain. In the short term, however, exports are not expected to skyrocket. This is due, in part, to the fact that WTI is currently trading at approximately $1 less per barrel than Brent. With the spread being so narrow, the cost of chartering tankers to deliver U.S. crude to foreign refineries makes exports generally less attractive. In addition, domestic refineries have increased their processing of U.S. crude while domestic production has plateaued because of lower oil prices. Nevertheless, in the long run, it is possible, if not likely, that shifts in price and production will create very attractive opportunities for U.S. producers and traders to market substantial quantities of domestic crude abroad. The legislation discussed above will provide the flexibility necessary to capitalize on those opportunities.