Federal budget negotiations are still underway in Washington, D.C., as the Consolidated Appropriations Act, 2016 – a $1.15 trillion appropriations bill that would keep the U.S. government funded through September 2016 – is close to gaining bipartisan approval. Voting will occur later this week.
Of keen interest to shipping interests is the repeal of the nearly 40-year-old ban on crude oil exports. Ironically, the affect on the tanker market is likely to be a non-event, because the price of Brent oil (reflecting oil sold throughout the world) is at a very small premium over the U.S. West Texas Intermediate (WTI).
Expressed another way, there is little price advantage for overseas buyers of U.S oil at this point in the price cycle. When tanker freight is considered (priced anywhere between $2 to $8 bbl. depending on origin/destination, and type of vessel), purchases of U.S.-produced crude oil by buyers in Europe or Asia would not be profitable. The freight cost would eat up the profit margin on the crude oil.
Other parts of the bill had positive implications. The American Association of Port Authorities (AAPA) gave a rousing endorsement to a draft of the bill published midweek.
According to the AAPA, “the largest increases are for the U.S. Army Corps of Engineers’ Coastal Navigation Program and the Environmental Protection Agency’s Diesel Emissions Reduction Act (DERA) grants program.”
AAPA pointed out that the budget deal also includes level funding for the U.S. Department of Transportation’s Transportation Investments Generating Economic Recovery (TIGER) grants program and the Department of Homeland Security’s (DHS) Port Security Grant Program.
After the political horse-trading was done, the maritime industry came out better than it had hoped. AAPA pointed to $2.6 billion for Corps of Engineers coastal navigation projects and studies, plus $1.2 billion from the Harbor Maintenance Trust Fund, an increase over the previous year’s draw of $1.12 billion, and far more than the president’s fiscal 2016 budget request of $915 million.
The Obama administration had previously voiced its displeasure at the oil export provisions. But in a rare show of bipartisan compromise, the Democrats dropped its opposition to lifting the ban on oil exports in exchange for a five-year extension of the investment tax credit for solar and an extension of the production tax credit for wind through 2019.