No export ban? No problem for U.S. refiners getting tax break

Restrictions on U.S. crude exports may disappear. That doesn’t mean the sky is falling for refiners.

A Bloomberg index of 11 U.S. independent refiners rose 1.5 percent at 10 a.m. in New York, after Congress agreed on a deal to lift a 40-year ban on most oil exports. Refiners, who process crude into gasoline and diesel, are getting a tax break on the cost of transporting oil as part of the deal.

Refiners have been the biggest beneficiaries of the shale boom, using cheap oil and gas to run their plants at record rates and make the U.S. the world’s largest exporter of gasoline and diesel. U.S. plants will still have access to cheaper oil and natural gas than most of the rest of the world and are situated in the largest market for refined fuels, said Carl Larry, head of oil and gas for Frost & Sullivan LP.

“They’re positioned to succeed regardless,” Larry said. “They can still make products cheaper than anywhere in the world. It’s the largest refining system in the world. Regardless of whether the U.S. exports crude, they’ll be ahead of the game.”

The House and Senate on Tuesday evening reached a deal on tax and spending plans that included an end to the oil-trade limits that were implemented in 1975 after the Arab oil embargo. Drillers such as ConocoPhillips have argued that the restrictions make no sense in a post-shale world in which the U.S. produces more oil than it imports.

The spending bill includes a tax provision meant to blunt the potential damage to domestic refiners of allowing unfettered crude exports. The change would allow non-integrated refiners to count 75 percent of their oil-transportation costs toward an existing manufacturing tax deduction. Opponents of the deal see that as not enough of a benefit.

“The remedy for refineries is not adequate and you’re looking at one manifestation of job loss there,” said House Minority Leader Nancy Pelosi, Democrat from California.

Producers complained about the ban as U.S. oil prices reached record discounts to foreign barrels. West Texas Intermediate crude in Oklahoma was as much as $27.88 a barrel cheaper than European Brent in 2011. Light Louisiana Sweet on the Gulf Coast was as much as $16.58 cheaper than the international benchmark in late 2013.

Those discounts had already shrunk considerably even before the export agreement was reached as companies built pipelines in the U.S. to distribute oil more evenly and a supply glut expanded throughout the world, depressing prices everywhere. WTI narrowed to 93 cents a barrel below Brent on Wednesday, and LLS traded at $1.50 a barrel more.

“This is like the Keystone debate. You’re fighting last year’s battle here,” said Robert Campbell, an analyst for Energy Aspects Ltd. in New York.