Email of the day
Comment of the Day

March 17 2015

Commentary by David Fuller

Email of the day

On supply restrictions despite a superior product at a cheaper price:

“David, what if a country produces more of a high quality product as a result of their own technological innovations and they can hardly store it anymore and you are not allowed to sell it on the international markets and your product has a superior quality and is sold at a considerable lower price than the lower quality product produce abroad what would you do? What if companies like GE, Pentair, Caterpillar etc suffer due to decreasing sales because of this and if US banks are occurring losses due to this law; what would you do? What if a lot of jobs are at stake? Apparently there was a meeting last Friday with the White House. Isn't this a great opportunity for President Obama to lift the export ban on WTI?  These are as you said before very interesting times. Maybe BP an RD wouldn't like it but the European autonomies and consumers would like it for sure. Maybe a nice trade, going long WTI and short Brent.”

David Fuller's view

Many thanks for a very interesting and topical email from The Netherlands, beautifully introduced to show the insanity of the policy to which you are referring.  My guess is that President Obama is not very interested in economic matters.  Moreover, he favours green energy policies and mistrusts the oil industry, which is unlikely to have voted for him.  He certainly did not encourage fracking, which has been a godsend for the US economy.  More importantly, it is now the single most important factor in today’s much cheaper oil prices, which will help the global economy to recover over the next few years.

Perhaps commonsense and political pressure will cause Obama to lift the export ban on WTI.  If not, the next president almost certainly will and this may become a campaign issue.  I think BP and RD are sufficiently integrated oil companies, so they should be able to adapt and eventually prosper from lower oil prices, although this remains to be seen. 

Re your concluding trade: long WTI and short Brent, I see the logic.  However, since we are talking about a political decision, I do not know how long it will take for today’s spread to narrow sufficiently to offset your costs and provide a worthwhile profit.  Lastly, I think WTI is likely to remain at a somewhat smaller discount to Brent, because the USA will remain a major energy producer of both fossil fuels and increasingly renewables, over the foreseeable future.    

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