Barack Obama’s administration opened the door for expanded oil exports
Crude Extends Losses on Rising Inventories at Cushing
Photographer: Ty Wright/Bloomberg
Rig hands work at a Knox Energy Inc. oil drilling site in Knox County, Ohio, U.S. OPEC... Read More
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Oil extended the largest annual decline since 2008 as the Energy Information Administration said crude stockpiles at Cushing,Oklahoma, gained last week.
Inventories at the delivery point forNew York Mercantile Exchange futures jumped 2 million barrels to 30.8 million, the most since February, the EIA said. U.S. stockpiles declined 1.75 million barrels in the week ended Dec. 26 to 385.5 million. Analysts surveyed by Bloomberg expected an increase of 900,000 barrels in the national total. Stockpiles were at the highest level for this time of the year in three decades.
West Texas Intermediate for February delivery dropped $1.01, or 1.9 percent, to $53.11 a barrel at 10:37 a.m. on the Nymex. It reached $52.51, the lowest since May 2009, earlier.
Brent for February settlement fell $1.15, or 2 percent, to $56.75 a barrel on the London-based ICE Futures Europe exchange after touching $55.81, also the lowest since May 2009.
Oil has slumped as U.S. producers and the Organization of Petroleum Exporting Countries ceded no ground in their battle for market share amid a supply glut. OPEC has signaled it won’t cut supply to influence prices, instead preferring to defend market share amid an unprecedented U.S. shale boom.
“You have weak demand and strong supply and it brings prices back down,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “It’s the year that U.S. shale oil ascended to the throne. It’s interesting to see whether OPEC will continue to take no action.”
U.S. Boom
The U.S. oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, or fracking, which has unlocked supplies from shale formations including the Eagle Ford and Permian in Texas and the Bakken in North Dakota.
President Barack Obama’s administration opened the door for expanded oil exports by clarifying that a lightly processed form of crude known as condensate can be sold outside the U.S.
The publication of guidelines by the Commerce Department’s Bureau of Industry and Security yesterday is the first public explanation of steps companies can take to avoid violating export laws. It doesn’t end the ban on most crude exports, which Congress adopted in 1975 in response to the Arab oil embargo.
Gasoline stockpiles gained 2.95 million barrels to 229 million. Distillates rose 1.87 million to 125.7 million.
To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net; Moming Zhou in New York at mzhou29@bloomberg.net
To contact the editors responsible for this story: Bill Banker at bbanker@bloomberg.net CharlottePorter, Richard Stubbe
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Permalink Reply by Philip Brutz on
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http://www.bis.doc.gov/index.php/policy-guidance/faqs#subcat171
- 1. What are the restrictions on the export of crude oil?
Crude oil is subject to short supply export controls; section 754.2 of the Export Administration Regulations (EAR) (15 C.F.R. Parts 730-774) sets forth the restrictions relating to the export of crude oil. These restrictions are derived from a number of statutory provisions, such as the Energy Policy and Conservation Act of 1975 (EPCA). Per the EAR, a license is required to export crude oil (as defined in the Section 754.2(a) of the EAR) to all destinations, including Canada.
Section 754.2(b)(1) provides for approval of licenses in the following instances:
- Exports of crude oil from Alaska's Cook Inlet;
- Exports of oil to Canada for consumption or use therein;
- Exports in connection with refining or exchange of strategic petroleum reserve oil;
- Exports of certain California heavy crude oil;
- Exports consistent with certain international agreements;
- Exports consistent with Presidential findings; and
- Exports of foreign origin crude oil not comingled with domestic crude.The EPCA and other statutes generally ban the export of crude oil in other instances. However, pursuant to 754.2(b)(2), BIS will consider applications on a case-by-case basis and generally will approve them if the proposed exports are consistent with the national interest and the purposes of the Energy Policy and Conservation Act.
- 2. How do I determine if my commodity is crude oil?
Crude oil is defined in the Section 754.2(a) of the EAR as "a mixture of hydrocarbons that existed in liquid phase in underground reservoirs and remains liquid at atmospheric pressure after passing through surface separating facilities and which has not been processed through a crude oil distillation tower. Included are reconstituted crude petroleum, and lease condensate and liquid hydrocarbons produced from tar sands, gilsonate, and oil shale. Drip gases are also included, but topped crude oil, residual oil, and other finished and unfinished oils are excluded."
Furthermore, crude oils controlled in Export Control Classification Number (ECCN) 1C981 are listed by Schedule B number in Supplement 1 to Part 754.
- 3. Is lease condensate considered crude oil?
Lease condensate, including lease condensate produced from tar sands, gilsonite, and oil shale, is defined as crude oil in Section 754.2(a) of the EAR. Lease condensate is also classified as a crude oil under ECCN 1C981.
However, under 754.2(a), lease condensate that has been processed through a crude oil distillation tower is not crude oil but a petroleum product. Petroleum products are subject to few export restrictions. Those unsure whether their lease condensate has been processed sufficiently to be considered a petroleum product eligible for export may request a formal Commodity Classification from BIS, in accordance with the procedures described in EAR Section 748.3.
- 4. What is required in order for liquid hydrocarbons to have been “processed through a crude oil distillation tower”?
Under Section 754.2(a) of the EAR, liquid hydrocarbons that have not been processed through a crude oil distillation tower are classified as crude oil. Liquid hydrocarbons processed through a crude oil distillation tower are classified as petroleum products (EAR99). 15 CFR 754.2(a).
Distillation is the process of separating a mixture of components according to their differences in boiling points. In order for liquid hydrocarbons to be classified as petroleum products, there must be material processing through a crude oil distillation tower. If there is no processing in the distillation tower, or the processing is de minimis, the liquid hydrocarbons will not qualify as petroleum products.
Processes that utilize pressure reduction alone to separate vapors from liquid or pressure changes at a uniform temperature, such as flash drums with heater treaters or separators, do not constitute processing through a crude oil distillation tower. Crude oil processed through such equipment remains classified as crude oil.
The factors BIS will consider in reviewing commodity classifications to determine whether the product has been "processed through a crude oil distillation tower" include, among others:
(1) Whether the distillation process materially transforms the crude oil, by using heat to induce evaporation and condensation, into liquid streams that are chemically distinct from the crude oil input;
(2) The change in API gravity between the input of the process and the output of the process;
(3) The change in percentage of different types of hydrocarbons between the input and output of the process;
(4) Whether the streams resulting from distillation have purposes other than allowing the product to be classified as exportable petroleum products, such as use as petrochemical feedstock, diluent, and gasoline blendstock;
(5) Whether the distillation process utilizes temperature gradients and has significant internal structures, such as trays or packing, and differentiated output streams;
(6) Whether the distillation uses towers with more mechanical complexity and heat, higher residence time, internal structures that promote condensation and better separation, and a consistent quality liquid streams (also called cuts or fractions) than equipment used to separate vapors and liquids for transportation needs.These factors are not intended to be categorical or exhaustive. In reviewing commodity classification applications, BIS will look at the particular circumstances of each application to determine whether the output of a process can be considered a petroleum product under the current regulatory definition.
- 5. Is an export license required to export refined petroleum products?
Most petroleum products (listed by Schedule B number in Supplement No. 1 to part 754) are classified as EAR99 and may therefore be exported to most of the world without a license (the exception is exports to embargoed destinations). However, if the petroleum product was produced or derived from the Naval Petroleum Reserve, then it is covered by ECCN 1C982 and is subject to the licensing requirements for that ECCN described in Section 754.3 of the EAR.
- 6. According to the Regulations, “foreign-origin” crude oil can be exported (with a valid license) as long as it is not “co-mingled” with domestic crude oil. What is the acceptable level of domestic crude that can be mixed with foreign crude and still be eligible for export?
The Regulations do not specify any de minimis amount of U.S.-origin oil that can be co-mingled with the foreign oil. However, BIS understands that a minimal amount of mixing may occur due to incidental contact in pipelines and/or storage tanks when foreign and U.S. origin-oil is sequentially transported or stored in the same pipeline or tank. We encourage those applying for export licenses for foreign-origin crude to include in their application an explanation of the precautions they are taking to ensure that U.S. crude oil is not mixed with the foreign-origin crude, other than incidental contact.
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