October 27, 2014 at 6:02 am ET
Albert Einstein once observed: “If the facts don’t fit the theory, change the facts.” That’s exactly what the large oil companies are trying to do by attempting to convince American voters and elected officials to support crude oil exports. Big Oil is trying to sell the theory that if crude oil exports are allowed, gasoline prices will fall. But since reality doesn’t support that theory, they are trying to change the facts.
Take Big Oil’s response to a recent report issued by the U.S. Government Accountability Office (GAO). If you read their interpretation of the GAO report, you’d come away thinking the agency supports crude oil exports because it concluded gas prices would drop. This is Washington spin at its finest! The facts are these:
First, the GAO makes a single recommendation: The Secretary of Energy should reexamine the size of the Strategic Petroleum Reserve. That was it. The GAO made no recommendation regarding crude oil exports. None. Indeed, if there is any “action item” flowing from the GAO report, it is that the Department of Energy should be required to fulfill the GAO’s recommendation before any consideration is given to lifting the crude oil export ban.
Second, the GAO reached no independent conclusion that gas prices would drop if the federal government changes its 40-year old ban on crude oil exports. All the GAO said is the reports they reviewed said that gas prices “could” go down. The GAO then noted factors making this speculation “uncertain,” including the extent to which domestic versus international crude oil prices determine the domestic price of consumer fuels; the fact that OPEC, the international oil cartel led by Saudi Arabia, could seek to maintain international crude oil prices by pulling crude oil from the global market; and that even if prices did go down, such decreases may be regional.
With such uncertainty, voters understandably oppose any change in crude oil export policy. In a recent survey of likely New Hampshire voters conducted by the University of New Hampshire Survey Center, 78% of respondents want the government to be certain about the impact of crude oil exports on gasoline prices before the current law is changed. Thus, elected officials face a huge political risk if they vote to allow exports without being certain of the effect on gas prices — and they cannot come close to being certain, as the GAO report notes.
Third, the GAO conducted no independent research or analysis. Rather, its report represented a compilation of studies already completed – nearly all of which were supported by the oil producers who would reap vast financial benefits if the existing current ban on crude oil exports was lifted. And even still, the GAO report proved inconclusive on the impact crude oil exports would have on the prices consumers are paying at the pump.
Surprisingly, the GAO failed to consider independent reports showing that gas prices would rise if exports were allowed. A 2014 analysis by Barclays PLC found that “the U.S. consumer is currently benefitting from discounted crudes in the form of cheaper gasoline prices.” The Barclays analysis showed drivers pay 7 cents less per gallon of gas because U.S. refiners are passing on savings of about $3 per barrel from processing lower-cost domestic crudes. Barclays concluded that this discount of 7 cents per gallon of gas equated to annual savings of more than $9.5 billion last year and an expected $9.6 billion of consumer savings in 2014.
Independent analyst Wells Fargo agrees: “Having analyzed the data regarding crude oil prices and U.S. wholesale gasoline prices, we are comfortable stating that U.S. gasoline consumers are benefiting from the inability to freely export U.S. produced crude oil.” Wells reiterated: “…we provide evidence that U.S. gasoline consumers are benefiting from the restrictions on crude oil exports.”
The Barclays and Wells Fargo reports did not speculate on what will happen in the future, but analyzed actual market trends. The GAO should have considered them.
Fourth, the GAO concedes the impact on gas prices depends on how the global crude oil market responds. Importantly, the GAO notes that studies showing gasoline prices would fall if exports were allowed “assumed that OPEC would not respond by attempting to counterbalance the effect of increased U.S. exports by reducing its countries’ exports.”
It is foolish to risk that OPEC would not respond to defend its interests. In recent weeks, daily news reports have speculated about what OPEC leader Saudi Arabia would do – and for good reason. Saudi Arabia and others in OPEC continue manipulating world crude oil prices, as they have done for the past 40 years, by controlling the global supply of oil. The OPEC cartel effectively distorts global crude pricing through a quota system that controls supply to manipulate prices.
Despite this, American motorists are paying less at the gas pump today because keeping our crude oil here in the U.S. is keeping gasoline prices lower than overseas. Lower crude oil prices also mean that consumers pay less for heating oil, diesel fuel, propane and other petroleum products. In sum, for those who worry that the GAO just came out in favor of crude oil exports, don’t believe it. No such thing occurred, despite efforts by some to change the facts to fit their theory of the case.
Jeffrey Peck represents Consumers and Refiners United for Domestic Energy, whose members are Alon USA, Monroe Energy, PBF Energy and Philadelphia Energy Solutions.