Gasoline prices in all parts of the United States are tied to Brent rather than the domestic crude oil benchmark WTI, according to a detailed study recently published by the Energy Information Administration (EIA).
The EIA study removed the last principled objection to lifting the ban on U.S. crude oil exports – namely that it would lift domestic oil prices and through them the cost of filling up at the pump.
“While crude oil prices matter to those involved in producing oil or refining oil into products, most Americans and the policymakers who represent and serve them are mainly concerned with the price of gasoline and other refined products,” EIA noted (“What drives U.S. gasoline prices?” Oct 30). “The issue of which crude oil (Brent or WTI) matters most for U.S. gasoline prices is particularly relevant as policymakers in the executive branch and Congress consider the possibility of changes in current limitations on crude oil exports,” the agency added.
In 2013, the average U.S. household spent $2,600 buying gasoline, according to EIA. Legislators from both Republican and Democratic parties are worried that lifting current restrictions on U.S. crude oil exports raises fuel bills for voters.
Over the past 18 months, U.S. lawmakers have repeatedly called for more evidence about the likely impact on pump prices before deciding whether to ease the current curbs, which were enacted in the 1970s in response to the Arab oil embargo (“History of U.S. controls on oil exports” Oct 24).
EIA, a respected and independent statistical and analytical arm of the U.S. Department of Energy, has responded with a comprehensive study of the relationship between Brent and WTI and the wholesale cost of gasoline in four major U.S. markets – New York Harbor, U.S. Gulf Coast, Chicago and Los Angeles.
“Brent crude oil prices are more important than WTI crude oil prices as a determinant of U.S. gasoline prices in all four regions studied, including the Midwest,” the agency found.
“The WTI crude oil price lost much of its power to explain changes in U.S. gasoline prices after 2010, when its differential to Brent crude became wider and much more volatile.”
An even more detailed examination showed that U.S. gasoline prices were more closely tied to Brent both before and after 2010. The agency concluded: “The effect that a relaxation of current limitations on U.S. crude oil exports would have on U.S. gasoline prices would likely depend on its effect on international crude oil prices, such as Brent, rather than its effect on domestic crude prices.” (Reuters)