Data aficionados among our readers will appreciate that it is best to analyze price movements using as disaggregated data as possible, both temporally and spatially. In the original version of our recent issue brief, we used annual data. But with more time to acquire data, we found monthly data series. Importantly, these new data include observations from 2013, and so have observations after the flow reversal of the Cushing pipeline connecting to the Gulf Coast area in 2012 and its expansion in 2013. Using these data instead and allowing for idiosyncratic impacts on crude oil prices in PADD 2 and PADD 4, we found that crude oil prices in the Midwest were actually only $6.34 per barrel below world prices, not $14.83 as we originally estimated.
In our simulation model, this difference in crude oil pricing meant that lifting the crude oil ban was found to increase the price of crude oil by about $0.15 per barrel instead of reducing it by $0.01. We also found slightly smaller reductions in gasoline prices—from 2.8 to 6.9 cents per gallon using annual data to 1.7 to 4.5 cents per barrel using monthly data. We also did standard sensitivity analyses on both data sets. In no case did we find gasoline prices increasing as a result of lifting the crude export ban.
As is explained in the issue brief (an updated version reflecting the changes discussed here is now available), lifting the ban on US oil exports would increase the supply of crude oil produced in the Midwest and the areas of Canada supplying the Midwest, putting downward pressure on crude oil and refined product prices. Lifting the ban would also improve the efficiency of refinery operations and reduce what is known as the crack spread (the difference between prices for refined products and crude oil). A reduced crack spread would increase the supply of refined products and at the same time boost the international demand for crude oil, putting downward pressure on refined product prices and upward pressure on international crude oil prices.
With a nearly $15 gap to close, we found that lifting the ban would result in an increase in world oil supply that would dominate the increase in oil demand, which would lead to slightly lower price for crude oil. With only about a $6 gap to close, we found that lifting the ban would result in an increase in world oil demand that would dominate the increase in supply, which would lead to a somewhat higher price of crude oil.
Both the increase in supply of crude oil and the reduction in the crack spread would reduce gasoline prices. With a smaller price gap to close, we found lifting the ban would yield a smaller reduction in gasoline prices.