(AP) — The U.S., seemingly awash in crude oil after an energy boom sent thousands of workers scurrying to the plains of Texas and North Dakota, will begin exporting oil for the first time since the 1973 oil embargo. The lifting of the embargo is part of a spending deal expected to be pushed through the House and Senate by the end of the week. Here's a brief look at why the ban was in place, and the reasons why that ban is now being lifted after four decades.
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Lines. Of all the bad memories seared into the American consciousness from the early 1970s, never-ending lines at the gas pump has to be near the top the list. The Organization of Arab Petroleum Exporting Countries put into place an oil embargo after the U.S. sided with Israel in the Yom Kippur War and the price of oil spiked. The economic effects were so dire some of the resulting policies, including a ban on oil exports, remain in place to this day.
The country's energy crisis grew more precarious because domestic production began a long decline in the 1970s as oil fields matured. That decline lasted for almost 40 years and the U.S. increasingly relied on oil imports. U.S. production, which had reached almost 10 million barrels per day in the early 1970s, was halved by 2008.
So what's changed?
Technology. U.S. energy companies have developed new techniques that not only free oil and gas from fields once thought unreachable, they are returning to oil fields that, using older technology, were thought to be long drained of all fossil fuels. That created a tectonic shift in the global energy landscape. This week, crude prices fell to below $35 per barrel, down from more than $100 per barrel just last year. It's the first time oil has been that cheap since a global recession erased energy demand.
Who will benefit if the ban is lifted?
Major oil companies. Companies including Exxon Mobil and ConocoPhillips, along with the American Petroleum Institute, an oil and gas lobbying group, have been the biggest proponents of ending the ban. But the economic benefits could be very broad. Economists say exports could help the economy by reducing gasoline prices, encouraging investment in oil and gas production and transport, creating jobs, making oil and gas supplies more stable and reducing the U.S. trade deficit.
Every rose has its thorns
Among the biggest beneficiaries of the U.S. energy revolution: you. Those against lifting the ban say that as domestic crude leaves U.S. shores in tankers, oil will be less plentiful at home. There are a lot of U.S. industries for which energy is a huge cost, from agriculture, to airlines, to manufacturing. Many economists, however, say that U.S. oil exports would have little or no effect on prices, largely because the U.S. already exports record amounts of gasoline and diesel. Still, environmental groups worry that the rush by big U.S. energy companies to supply the world with crude will have devastating effects on the climate.
The end to the four-decade ban on U.S. crude exports was the big prize in the budget battle for Republicans, who saw it as an arcane policy given the nation's exploding production of oil and natural gas. In return, they agreed to the demand from Democrats for a five-year extension of credits for wind and solar energy producers and a renewal of a land and water conservation fund. Democrats also blocked a push by Republicans to GOP proposals to impede Obama administration clean air and water regulations. (Pictured: Speaker of the House Paul Ryan talks to reporters following the weekly House GOP Conference meeting at the U.S. Capitol December 16, 2015 in Washington, DC. Chip Somodevilla/Getty Images)
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HOUSTON — U.S. crude prices dropped below $27 a barrel for the first time since 2003 on Wednesday after another slide in Chinese stocks as investors worried the world’s second-largest consumer of oil has entered a protracted manufacturing slowdown.
The 6.7 percent plunge in oil prices dovetailed pain in the stock market: the Dow dropped 322 points, or 2 percent, as of 2:55 p.m. ET. The S&P 500 lost 31.9 points, or 1.7 percent.
Major oil companies tumbled as well. Exxon Mobil fell nearly 5 percent, or $3.80, to $72.60. Chevron slipped a little more than 6 percent, or $5.04, to $76.47.
The International Energy Agency this week had said China, Brazil, Russia appeared to be weakening as global oil demand growth declined 52 percent from a five-year high in the third quarter to the fourth quarter in 2015.
“There’s no catalyst right now to drive prices higher,” said R.T. Dukes, an analyst at Wood Mackenzie in Houston. “Whether its from Iran or others, you have an oversupplied environment. Everything that’s visible is heading in the wrong direction.”
Global crude stockpiles could rise by 285 million barrels this year, the IEA said, as the market continues to push massive inventories through an oil complex that’s having difficulty keeping up. Earlier this month, the World Bank said that in 2015 emerging economies slowed to their most sluggish growth in 14 years, and China and others could put a ceiling on oil demand growth in 2016.
“For China, for so long the engine of global demand growth, we expect demand to increase by 350,000 barrels a day, below the recent trend level,” the IEA said. China’s major stock exchange, the Shanghai Composite, fell 1 percent in Asian trading.
U.S. crude fell $1.91 on Wednesday to $26.55 a barrel on the New York Mercantile Exchange, the lowest settlement since May 2003. Brent, the global benchmark, fell $1.12 to $27.64 a barrel on the ICE Futures Europe.
Dukes said domestic crude production will drop off sharply because of the recent downturn in prices but the reduction in output won’t be seen for another few months because of lagging data and drilling activity.
Wood Mackenzie expects about 100 more rigs to be sidelined in coming months. Each rig, the group estimates, is tied to a little less than 100 jobs. Deactivating drilling rigs once affected 100 to 150 jobs but as the industry has become leaner, so has the number of job cuts that follow a rig closure, Dukes said.
The U.S. oil industry can grow when crude prices range from $50 to $60 a barrel. But shale well profitability ends around current prices.
“There’s no play or area that works at $30 oil,” Dukes said. “If there were great plays at $30 oil, people would still be raising money. In the U.S., you need higher prices.”