As the U.S. begins to export condensate oil, its 40-year old ban on exporting crude oil will be relaxed, but it will not affect the world's oil market nor Saudi Arabia's efforts to regain its market share, say experts.
The U.S. Department of Commerce's Bureau of Industry and Security agreed last Tuesday to grant export licenses for companies who wish to export condensate light shale oil from the U.S. to overseas.
'Condensate is a byproduct of shale oil and gas wells, which is a useful feedstock for manufacturing chemicals,' said Ed Hirs, an energy economist at the University of Houston in the U.S.
'It is the latest in a gradual process of relaxing the ban,' Jeff Colgan, an assistant professor of politics and international relations at the Watson Institute of Brown University in the U.S., told The Anadolu Agency.
'The U.S. policy relaxes but does not remove the ban on crude exports,' he added.
The U.S.' 40-year-old self-imposed ban against exporting crude oil came into play during the 1970s after the Arab oil embargo forced the oil-dependent U.S. economy to face soaring oil and gasoline prices, which in turn forced the country to look for ways to boost its own resources.
'Eventually, the U.S. will remove the ban on oil exports,' Hirs said.
He stressed that allowing condensate exports would be just a fraction of the world's crude oil market, while Colgan agreed saying: 'The U.S. condensate exports will be only a tiny fraction of the world market for oil.'
- Falling oil prices and Saudi market share
The decision of the U.S. department comes at a time when oil prices have been falling sharply in the last six months, and while there is a glut of oil supply in the world markets.
The price of global benchmark Brent crude oil has been in steep decline since June, falling from $115 per barrel to $55 mark on Dec. 30, the lowest point in the last five and a half years, and the fastest fall since 2008.
The Organization of the Petroleum Exporting Countries, OPEC, announced on Nov. 27 that they would maintain the production of 30 million barrels of oil per day until June, and would not cut production to stop the price fall.
The world's largest crude oil exporter, Saudi Arabia, lowered its official sale price of crude oil to the U.S. in order to preserve its market share and compete with the booming domestic oil production in the country.
Experts state that allowing condensate exports would not pose a serious obstacle against Saudi Arabia's aspirations to regain its market share in the global oil market.
'I don’t think this will greatly influence the Saudi efforts to recapture market share because it only covers condensate, not crude oil,' Colgan said.
Hirs stressed that Saudi Arabia was the world's largest supplier of condensate, while the U.S. has now equaled Saudi Arabia in supplies to the world market.
'The granting of condensate export licenses in this niche market is nice but not material to anyone,' he added.
Hirs underlined that Saudi Arabia is the low-cost producer, while the U.S. independent producers in the shale oil plays are the high-cost producers in the world market.
'The U.S. will be unable to maintain current levels of shale oil production at the current low prices - less than $60 per barrel at Brent and WTI at the year-end in 2014,' he concluded.
Many oil analysts believe that the break-even price for Saudi Arabia is around $20-$30 per barrel, although the kingdom does not officially declare an amount.
The global benchmark Brent crude oil price stood at $55.45 per barrel and the American benchmark, West Texas Intermediate, WTI was recorded at $51.77 per barrel at 9:00 a.m. GMT.
By Ovunc Kutlu
Anadolu Agency
ovunc.kutlu@aa.com.tr