Last week, the US Department of Commerce ruled that two oil companies - Pioneer Natural Resources Company and Enterprise Product Partners LP - could commence foreign exports of ultra-light crude oil condensates. The announcement generated speculation that the Obama government might be prepared to relax the 41-year old restriction on US crude exports due to the country's burgeoning shale oil production.
But analysis from energy consultants Wood Mackenzie suggests that rather than a definitive change to existing US policy, the move should be seen as a harbinger of incremental measures that might eventually test the definitions relating to the export ban. The market wasn't quite so circumspect judging by the reduced spread between Brent crude and WTI prices - initially at least.
The spread on contracts (for August delivery) narrowed by as much as 15 per cent on the day of the announcement to $7.18, but the move was short-lived. Forward contracts for WTI subsequently fell by as much as 66 cents to $105.08 a barrel once realisation set in that the Department of Commerce's decision was unlikely to have much near-term impact on swollen US crude inventories. Brent crude prices also pulled back inspite of the security situation in Iraq. The outcome of the current turmoil is wholly unpredictable, but with two-thirds of Iraq's producing assets located well away from the trouble spots, oil output remains unaffected by fighting in the north of the country. Global crude markets have achieved a kind of stasis. Though OPEC has had to contend with production outages in Iran and Libya, a growing proportion of US demand is being met through domestic unconventional drilling. So while we have witnessed a degree of volatility, prices have remained remarkably stable.