Oil industry fears export limits in U.S.

The U.S. oil and gas industry is growing increasingly concerned that the Trump administration may limit or temporarily ban the export of crude oil or refined products such as gasoline and diesel.

While the price of crude oil has come down from recent highs, the market for gasoline and diesel remains tight, hit not just by the disruptions in the Strait of Hormuz, but also by a string of successful attacks from Ukraine on Russian refineries.

President Trump is clearly concerned about the political costs of angry motorists paying for expensive fuel.

In an August 3rd post, President Trump said that without his administration, “the Oil Industry, and our Country itself, would be DEAD!”. He added “get your consumer (retail!) Oil Prices DOWN, NOW!”

Later that day, he said that ExxonMobil and Chevron are “making too much money.” ExxonMobil and Chevron together took in $26.5 billion in the second quarter.

A recent analysis from The Guardian found that the eight largest oil companies earned $93 billion in the three months following the start of the U.S. war on Iran, nearly double their profits from the same period a year earlier.

It isn’t just the corporate entities that are reaping windfall profits. Top oil and gas executives sold $400 million worth of stock in their own companies since the start of the war, which means they have personally profited.

Cash-strapped consumers are nonetheless paying higher prices at the pump as the industry earns huge sums, a situation that has created a political headache for the White House.

“When you look at one company where they made 12 times what they made the year before, they ought to give some of that back to the public and they better cut the retail price, the consumer price,” Trump said.

In March, just weeks after the war started, a group of Democratic Senators introduced legislation that would tax the oil industry’s windfall profits, with the proceeds rebated back to U.S. consumers.

Such a move is less controversial elsewhere. Portugal recently approved a 33 percent tax on the extraordinary profits of energy companies, and earlier this year several European countries called for a windfall tax on energy companies.

But in the U.S., such a scenario is highly unlikely. Instead, Trump’s comments have alarmed the oil industry over fears that Trump may respond with restrictions on exports in an effort to lower crude oil and gasoline prices. An export ban would temporarily force prices to decline as oil and gasoline remain trapped within U.S. borders. But analysts warn that scenario would disrupt trade flows and lead to a cutback in drilling, exacerbating the problem of constrained supply.

For now, the same prospect of a ban on LNG exports seems much more remote. Despite high volumes of exports, U.S. natural gas prices are not experiencing the same pricing pressure that is happening to crude oil, gasoline, or diesel.

Oil industry lobbyists have sprung into action.

“There’s an all-hands-on-deck from industry and inside the administration to stave it off,” one industry executive told Politico. Industry lobbyists have reportedly reached out to the White House Domestic Policy Council, the National Energy Dominance Council, the Department of Energy and Trump’s chief of staff Susie Wiles.

Trump administration officials, including Secretary of Energy Chris Wright, have repeatedly said they would not limit oil exports. But industry analysts are not convinced.

“We have suggested that President Donald Trump’s frustration with enduringly high pump prices could eventually bring a muscular intervention in oil and products markets, such as export limits,” ClearView Energy Partners, a Washington-based energy consulting firm, wrote in an August 4th note to clients. “That moment may be getting closer.”

The firm said that such an intervention could have “dire consequences” on the energy sector, discouraging upstream production and refinery processing. If price declines were steep, some operators might shut in wells and refineries might trim output.

“But, as a matter of politics, we reiterate that bad ideas rejected in April might get revisited later in the year,” ClearView’s analysts wrote.

If, then, the U.S. government responded by forcing companies to produce, it could result in lasting damage, including “long-term capital flight” from the oil and gas industry.

This scenario may seem unlikely, or extreme, but the political costs for the Trump administration will rise sharply if fuel prices experience more upward pressure. ClearView said while it is impossible to know what comes next, Trump “seems increasingly unlikely to do nothing.”