America's Best Option for Lowering Gas Prices Isn't What You Think

Brent Crude Oil Spot Price Chart

Brent Crude Oil Spot Price Chart

Brent Crude Oil Spot Price data by YCharts .

But the difference in pre-tax gasoline prices in the U.S. hasn't budged in comparison to other countries:

Source: U.S. Energy Information Administration.

Source: U.S. Energy Information Administration.

Why is this? Well, largely because we still import significant quantities of crude oil, about 7.7 million barrels per day at the most recent count from the U.S. Energy Information Administration. With about 45% of all refined crude oil coming from outside our borders, we are still very much subject to international crude price. Also, there is no ban or limit on exports ofU.S. refined product. So the price of gasoline will likely continue to be based on what the world pays, and keeping oil in-house probably won't lead to a lowering of gasoline prices no matter the cost of domestic supplies.

Lower global prices = lower domestic prices

How exactly could allowing the export of U.S. crude lower gasoline prices, especially considering that the nation will still will be a net importer of oil? It has a lot to do with Churchill's quote and the way the U.S. is geared to process crude oil. Much of the new oil produced from shale in the country is a very light crude oil, but our refineries are designed to refine heavier, lower-quality crudes from nations such as Mexico, Venezuela, and Canada. If the United States maintains an export ban on crude, we won't be able to process more of our light crude without massive refinery retrofits. Instead, it's much more likely that domestic crude prices will drop and producers will be less excited to bring on new production while refiners continue to produce at the same rate and sell gasoline at the international standard prices.

If the U.S. were to become a greater part of the global oil trade by allowing exports, it could significantly impact global oil prices in our favor, which would in turn lower gasoline prices. Allowing exports would likely increase domestic crude prices, but would also be expected to decrease international prices. According to a recent study from consulting group IHS, allowing oil exports would increase domestic production by as much as 2.3 million barrels per day on top of any projected growth. This could have up to a $5 per barrel impact on Brent prices. Add these cost savings up and you're looking at a potential 10% drop in gasoline prices.

What a Fool believes

I see the appeal of not exporting crude oil: Ideas such as "energy independence" and "going on our own in the energy market" really tug at American values of self-reliance and self-determination. However, they aren't as practical as they may seem. By electing to remain out of the global oil market, we would in essence deny ourselves the ability to maximize the value of U.S. oil. The situation between America's oil boom and the British Royal Navy's switch to diesel would seem to be worlds apart, but in both cases Churchill's words resonate: Diversity is the key to security.

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The article America's Best Option for Lowering Gas Prices Isn't What You Think originally appeared on

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