Oil Export Ban Lifted Amid Price Collapse – 12/18/15

The US has lifted its long-standing oil export ban at a time when commodity prices are at decade lows.

Although allowing the export of US oil for the first time in decades is historic, it is unlikely to have much immediate impact. The move comes during an oversupply in oil globally when companies are already struggling with debt taken on when major projects still seemed profitable. It may be because large effects seem unlikely that the legislation was able to pass, since it is only human nature to avoid rocking the boat when people are already uneasy with establishment figures. Naturally, even with both political sides claiming victory, there are some who will not benefit from the deal. Since the ban on exporting raw oil made domestic refineries the only option for many US firms, some higher cost refiners will go out of business if cheaper foreign refiners can be found. Though those firms will close and jobs will be lost, the oil producers will see the benefits of a global market both in buyers and refining services while U.S. oil prices will move to be more in line with global benchmarks.

Low oil prices don’t seem to dissuade banks from reining in high cost producers in the US oil market. Optimistic projections and hesitation to set off a chain of failures that would leave the banks holding oil assets may result in the US producers that OPEC members had hoped would collapse under low prices being much more robust. Since banks prefer to avoid holding foreclosed upon assets such as houses and oil assets, it is not unexpected that they would hope for a rebound in prices. Unfortunately, all the rose colored glass in the world can’t stop heavy losses in the energy industry, and banks holding loans from small, private oil producers may be facing a harsh reality if prices remain low well into 2016 as overproduction, bulging stockpiles, and moderate temperatures suggest. The lifting of the oil export ban was largely accounted for in prices minimizing the effect of the news on stocks.

Brazil continues to experience political and economic issues as major credit-rating firms downgrade the sovereign bonds to junk ratings, the president attempts to stave off impeachment, and the economy continues to struggle with basement-level commodity prices. Between the increased difficulty of servicing government debts and the graft scandal hitting the upper echelons of Brazilian society, policy is unlikely to help Brazil pull itself out of recession anytime soon. On the other side of the globe, the Bank of Japan is taking steps to reassure the nation that it can bolster an economy that has seen almost no growth in the last decade. An aging population combined with a reluctance to accept foreign labor is just one of the major issues facing the nation.

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