Despite achieving energy independence, the ongoing conflict with Iran has disrupted global supply and continues to drive up oil prices in the United States, highlighting the close connection between American oil prices and the international market.
Since March 1st, the average gasoline price in the United States has increased by nearly 40%. The reason seems straightforward: in response to U.S. military actions, Iran has blocked the Strait of Hormuz, disrupting the transportation of crude oil and reducing global supply by 7% to 10%.
While this explains the surge in oil prices and supply shortages in Europe and Asia, the U.S. does not heavily rely on that trade route for oil supply. In theory, as an oil-exporting country, the U.S. should have energy self-sufficiency.
However, experts interviewed by “Epoch Times” pointed out that the United States is intricately intertwined with the global oil market and cannot entirely isolate itself.
GasBuddy oil analyst Patrick De Haan stated, “Oil is a globally traded commodity, so any event will affect everyone.”
Amid supply shortages, countries are willing to pay higher prices to purchase American oil.
Paul Sankey, president of Sankey Research and an oil market analyst, said, “Strong demand is driving crude oil exports, pushing prices higher.”
Experts highlighted that if the U.S. government restricts oil exports, it could potentially create more problems than solutions.
Not all crude oils are the same. The U.S. primarily produces “light sweet crude oil” through hydraulic fracturing, which is easier to refine and contains fewer impurities like sulfur.
Middle Eastern crude oils are mostly “medium crude,” relatively easier to process but thicker and higher in sulfur content. Canada mainly produces “heavy sour crude,” which is even thicker and has a high sulfur content. Although Venezuela has vast reserves, its crude oil is mostly “extra-heavy sour crude” that few refineries can process.
Most U.S. refineries are designed to process heavy crude oil.
Energy policy analyst David Blackmon noted, “The majority of our refineries were built at least half a century ago when heavy crude oil from the Middle East and Mexico (the major oil-producing countries at that time) was the primary focus.”
Sankey pointed out that refineries have been adjusting their processing techniques to adapt to light crude oil.
However, former Asian refinery process engineer Keming Ma mentioned that it is easier to switch crude oils than adjust processing techniques, so refineries often blend different grades of crude oil for efficiency.
Furthermore, there are economic incentives to maintain the capability to process heavy crude oil. Robert Dauffenbach, an energy expert from the University of Oklahoma, stated that refineries invest billions to profit from the price differentials of heavy crude oil. He added, “Not all refineries can process heavy crude oil, so it’s often cheaper, to be honest.”
Currently, the U.S. exports approximately 5 million barrels of light crude oil daily, while importing over 6 million barrels of heavy crude oil.
Dauffenbach emphasized, “The amount of light crude oil our refineries can handle is nearing its limit.”
Another reason heavy crude oil is popular is its byproducts.
Refineries separate crude oil into various distillates, from lighter ones like methane and propane to gasoline, heavier products such as kerosene, diesel, heating oil, and finally asphalt. The lighter the crude oil, the fewer heavy distillates it produces.
Tracy Shuchart, a senior economist at NinjaTrader Group, explained that the U.S. imports heavy crude oil to produce products such as diesel and aviation fuel.
De Haan stated that restricting exports “may temporarily depress domestic prices but would harm allies reliant on U.S. supply.”
Dauffenbach highlighted that the United States produces around 13 million barrels of crude oil daily, whereas refineries (currently at full capacity) consume about 16 million barrels daily. Refinery output surpasses American consumption.
Sankey pointed out that the U.S. is a significant winner in oil exports, and banning exports would harm the country, disrupting the supply chain.
Blackmon said, “Our domestic tanks will fill up with light sweet shale oil, and we will have to stop importing heavy crude oil needed to produce diesel.”
De Haan mentioned that refineries now need more heavy crude oil. The current market demand for diesel is robust, with prices even surpassing gasoline.
Additionally, Sankey stated that an export ban would also curb the refining industry, “This will weaken our incentives to build more infrastructure for exports.”
The Trump administration has made it clear that an export ban is not under consideration.
The key to resolving the current dilemma lies in reopening the Strait of Hormuz. While Iran may struggle to completely block the strait, its threats have been enough for insurance companies to refuse coverage, detering shipping companies from risking passage.
De Haan believes, “Oil prices may continue to gradually rise until the issue is resolved.”
The relatively moderate impact of the price shock is partly due to the buffering effect of the supply chain. Blackmon noted that prior to the conflict, roughly 400 million barrels of crude oil were in transit globally, equivalent to about four days’ worth of supply.
Moreover, the U.S., Japan, and China hold significant strategic oil reserves, which are currently being utilized.
Nevertheless, the U.S. remains in a much better position compared to Asian and European countries.
Sankey stated that the “price shock” in the U.S., with gasoline prices rising from $3 to $4 per gallon, is still relatively lower on a global scale, as gasoline prices in countries like Germany have exceeded $9 per gallon.
The U.S. not only relies on domestic supply but also imports petroleum from Canada. Blackmon pointed out that around 95% of U.S. oil consumption comes from North America. Therefore, despite facing rising oil prices, there is no shortage in the U.S. yet.
Even without restricting crude oil exports, the government has other measures to mitigate oil prices, such as suspending the Jones Act to allow non-U.S. vessels to transport between domestic ports, reducing costs.
Additionally, the government could temporarily halt gasoline taxes or permit the year-round sale of E15 fuel with higher ethanol content to reduce prices.
However, with demand remaining strong, price pressures are unlikely to dissipate in the short term. Shuchart stated, “Unless the situation significantly deteriorates, it will be challenging for U.S. demand to drop significantly, as people generally rely on driving for transportation.”