United states is the on the verge of lifting a four decade old crude oil export ban this year as lawmakers in congress reached a deal last night in a closed door meeting. Democrats have agreed to support the lift, tabled by Republicans, in exchange for series of tax breaks for renewable energy. A deal to avert government shut down by funding the government, also got reached.
Voting is expected to take place on Thursday. However, White House has expressed its opposition to the lift. President Obama could veto the deal, which would mean some delays and further discounts from House republicans, rather than end of it.
Once passed, the lift will not only be historic, but will influence crude oil market for generations to come. However, immediate impact could very well be limited.
While some expect, the lift to give push to the WTI on upside, according to our view, any such push could only be short-lived. Global supply is quite large as of now, close to 2 million barrels/day, global inventory cushion is at record high of 3 billion barrels. Moreover, in US alone, glut and stockpile is quite large. Total crude oil and petroleum product inventory in US, including strategic petroleum reserve is now more than 2 billion barrels, while commercial crude stockpile at 485 million barrels, levels not seen in at least 80 years.
It could though, help cap the price differential in Brent-WTI, which is currently hovering at $1.4/barrel in favor of Brent. While there exists possibility that it might fall further in anticipation of greater demand for US crude, in reality pick up in exports of US crude oil might take months, if not years. Moreover, according to popular expectations, exporters may not have enough incentives to export, without much lower differential ($4/barrel) to international benchmark.
WTI is currently trading at $37/barrel.