According to DOE, the SPR held crude oil valuded  at almost $73 billion dollars as of May, 2014. Monthly domestic crude oil production has increased from an average of  about 5 million barrels per day in 2008 to about 8.4 million barrels per day  in April 2014, an increase of almost 68 percent. In 2014, prices for these benchmark crude oils narrowed  somewhat, and WTI averaged $101 through June 13, 2014, while Brent  averaged $109. Removing Crude Oil Export Restrictions Is Expected to Increase Domestic Crude Oil Prices and Could Decrease Consumer Fuel Prices

The studies we reviewed and stakeholders we interviewed generally  suggest some domestic crude oil prices would increase if crude oil export  restrictions were removed, while consumer fuel prices could decrease,  although the extent of consumer fuel price changes are uncertain and  may vary by region. On the other  hand, some stakeholders suggested that the U.S. refining industry will  not be able to keep pace with increasing U.S. light crude oil  production. Specifically, estimates in these studies of the increase in domestic crude  oil prices due to removing crude oil export restrictions range from about  $2 to $8 per barrel. Given the size of the global crude oil  market, this stakeholder suggested that U.S. exports would have little to  no effect on international crude oil prices. Removing Crude Oil Export Restrictions Is Expected to Increase Domestic Production and Have Other Effects

The studies we reviewed and stakeholders we interviewed generally  suggest that removing crude oil export restrictions would increase  domestic crude oil production and may affect the environment and the  economy. Projections of this increase varied in the studies we  reviewed—from a low of an additional 130,000 barrels per day on  average between 2015 and 2035, according to the ICF International  study, to a high of an additional 3.3 million barrels per day on average  between 2015 and 2035 in NERA’s study. Some stakeholders told us that removing  export restrictions would increase the risk for crude oil spills by rail  and other modes of transportation such as tankers. As discussed  previously, removing export restrictions is expected to increase  domestic crude oil production. Trade: According to the studies we reviewed, removing export  restrictions would contribute to further declines in net petroleum (i.e.,  crude oil, consumer fuels, and other petroleum products) imports and  reduce the U.S. trade deficit. Changing Market Conditions Raise Questions about the Size, Location, and Composition of the SPR

Changing market conditions—most importantly the significant increase in  domestic production of crude oil from shale—have implications for the  role of the SPR, including its appropriate size, location, and composition. Size: Increased domestic crude oil production and falling net petroleum  imports may affect the ideal size of the SPR—how much the SPR should  hold to optimize the benefits of protecting the economy from damage with  the costs of holding the reserves. One measure of the economy’s  vulnerability to oil supply disruptions is to assess net petroleum imports— imports minus exports. Net petroleum imports have declined from a peak  of 60 percent of consumption in 2005 to about 30 percent in the first half  of 2014. However, imports  have declined and, according to EIA’s most recent forecast, are expected  to remain well below 2005 import levels into the future. As  discussed above, removing crude oil export restrictions would be  expected to contribute to additional decreases in net petroleum imports in  the future. As a member of the IEA, the United States is  required to maintain reserves of crude oil or petroleum products equaling  at least 90 days of net imports, which it does with a combination of public  and private reserves. DOE Has Taken Steps to Reexamine Some Aspects of the SPR but Has Not Recently Reexamined Its Size

DOE has taken some steps to assess the appropriate location and  composition of the SPR in view of changing market conditions, but has  not recently re-examined its size. DOE concurred with the  recommendation. If DOE were to assess the  appropriate size of the SPR and find that it held excess crude oil, the  excess oil could be sold to fund other national priorities. Recommendation for Executive Action

In view of recent changes in market conditions and in tandem with DOE’s  ongoing activities to assess the content, connectivity, and other aspects  of the SPR, we recommend that the Secretary of Energy undertake a  comprehensive reexamination of the appropriate size of the SPR in light  of current and expected future market conditions. Appendix I: Additional Information on Four Studies of the Implications of Removing Crude Oil Export Restrictions

We identified four studies that examined the price and other implications  of removing crude oil export restrictions.
Why GAO Did This Study

Almost 4 decades ago, in response to the Arab oil embargo and recession it triggered, Congress passed legislation restricting crude oil exports and establishing the SPR to release oil to the market during supply disruptions and protect the U.S. economy from damage. After decades of generally falling U.S. crude oil production, technological advances have contributed to increasing U.S. production. Meanwhile, net crude oil imports—imports minus exports—have declined from a peak of about 60 percent of consumption in 2005 to 30 percent in the first 5 months of 2014. According to Energy Information Administration forecasts, net imports are expected to remain well below 2005 levels into the future.
GAO was asked to provide information on the implications of removing crude oil export restrictions. This report examines what is known about (1) price implications of removing crude oil export restrictions; (2) other key potential implications; and (3) implications of recent changes in market conditions on the SPR. GAO reviewed four studies on crude oil exports, including two sponsored by industry, and summarized the literature and views of a nonprobability sample of stakeholders including academic, industry, and other experts.

What GAO Found

The studies GAO reviewed and stakeholders interviewed suggest that removing crude oil export restrictions is likely to increase domestic crude oil prices but decrease consumer fuel prices. Prices for some U.S. crude oils are lower than international prices—for example, one benchmark U.S. crude oil averaged $101 per barrel in 2014, while a comparable international crude oil averaged $109. Studies estimate that U.S. crude oil prices would increase by about $2 to $8 per barrel—bringing them closer to international prices. At the same time, studies and some stakeholders suggest that U.S. prices for gasoline, diesel, and other consumer fuels follow international prices, so allowing crude oil exports would increase world supplies of crude oil, which is expected to reduce international prices and, subsequently, lower consumer fuel prices. Some stakeholders told GAO that there could be important regional differences in the price implications of removing crude oil export restrictions. Some stakeholders cautioned that estimates of the implications of removing export restrictions are uncertain due to several factors such as the extent of U.S. crude oil production increases, how readily U.S. refiners are able to absorb such increases, and how the global crude oil market responds to increasing U.S. production.
The studies GAO reviewed and stakeholders interviewed generally suggest that removing crude oil export restrictions may also have the following implications:
Crude oil production. Removing export restrictions would increase domestic production—8 million barrels per day in April 2014—because of increasing domestic crude oil prices. Estimates range from an additional 130,000 to 3.3 million barrels per day on average from 2015 through 2035.
Environment. Additional crude oil production may pose risks to the quality and quantity of surface groundwater sources; increase greenhouse gas and other emissions; and increase the risk of spills from crude oil transportation.
The economy. Removing export restrictions is expected to increase the size of the economy, with implications for employment, investment, public revenue, and trade. For example, removing restrictions is expected to contribute to further declines in net crude oil imports, reducing the U.S. trade deficit.
Changing market conditions have implications for the size, location, and composition of Department of Energy's (DOE) Strategic Petroleum Reserve (SPR). In particular, increased domestic crude oil production and falling net imports may affect the ideal size of the SPR. Removing export restrictions is expected to contribute to additional decreases in net imports in the future. As a member of the International Energy Agency, the United States is required to maintain public and private reserves of at least 90 days of net imports but, as of May 2014, the SPR held reserves of 106 days—worth about $73 billion—and private industry held reserves of 141 days. DOE has taken some steps to assess the implications of changing market conditions on the location and composition of the SPR but has not recently reexamined its size. GAO has found that agencies should reexamine their programs if conditions change. Without such a reexamination, DOE cannot be assured that the SPR is sized appropriately and risks holding excess crude oil that could be sold to fund other national priorities.

What GAO Recommends

In view of changing market conditions and in tandem with activities to assess other aspects of the SPR, GAO recommends that the Secretary of Energy reexamine the size of the SPR. In commenting on a draft of this report, DOE concurred with GAO's recommendation.