Exxon Mobil Corporation: First to Ship Crude Following Lifting of Export Ban

Exxon Mobil Corporation: First to Ship Crude Following Lifting of Export Ban

The oil major shipped its first crude oil tanker to Sicily, after a 40-year export ban was removed

By Muhammad Ali Khawar on Mar 4, 2016 at 8:30 am EST

Exxon Mobil Corporation (NYSE:XOM) is the first US oil major to export American crude oil outside the US. The company has shipped oil to its refinery in the Mediterranean, Bloomberg reports, citing sources familiar with the matter. The move will likely ease pressure off of local crude supply.

The company’s Maran Sagitta oil tanker, which sailed from Texas last month, has reached the port of Augusta, Sicily, the sources told the publication. Exxon’s latest initiative to ship oil abroad follows the lifting of the 1975 oil export ban. Earlier this year, European crude oil majors and several other independent trading houses, including Trafigura Pte, began shipping sweet, light crude oil overseas.

How Does Exxon Mobil’s Export Fit into the Bigger Picture?

Exxon Mobil’s crude oil exports could help end the US oil glut. Over the past 20 months, oil prices have crashed more than 70%, as prolonged increase in crude oil production and low demand from China continue to exert pressure. West Texas Intermediate (WTI), which was above $100 per barrel in June 2014, is trading at $34.86 per barrel in Asian markets today.

According to the Energy Information Administration (EIA) data, domestic US crude oil stockpiles are touching their highest levels in nearly 90 years. US oil producers recorded oil inventory of 518 million barrels in the last week of February.

In the low crude environment, many energy companies have cut their oil and gas rig count, and lowered their production target. Oil exports will likely allow US-based energy companies to take advantage of the differential between the global crude oil benchmark Brent and WTI. Brent is trading at $37.36 per barrel at present, around $2.5 higher than the American crude oil benchmark. As the oil export reduces the total output in the country, domestic crude oil prices may lift.

This may also provide an alternative to international refineries. If more companies start shipping crude oil abroad, European and other international refineries will have the option to use cheaper Texas light, sweet crude oil. Currently, refineries use Brent as the raw material.

How will the Exports Help Exxon Mobil?

The 40-year ban on crude oil was imposed to protect the domestic commodity market. After the Organization of the Petroleum Exporting Countries’ (OPEC) oil embargo of early 1970s, the Congress wanted to keep domestic crude for US consumers only.

However, amid the recent commodity market crash, oil giants including Exxon and Chevron Corporation (NYSE:CVX) started lobbying in favor of the removal of the export ban. In doing so, they went against the downstream companies, who believe the export ban will help them continue to earn high refinery margins.

For the fourth quarter of 2015, Exxon Mobil reported net adjusted profit of $2.78 billion (67 cents per share), a more than 58% decline year-over-year. The company cited low oil prices as the main reason behind its falling revenue and earnings. The oil export will allow the company to diversify its customer-base and improve its financial performance.

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