U.S. oil export ban repeal could pressure Brent prices lower

By Florence Tan

SINGAPORE (Reuters) - Global oil benchmark Brent may drop further after already hitting the lowest in seven years this week if the U.S. government repeals its decades-old ban on crude exports although the oil is unlikely to end up in Asia.

U.S. lawmakers will on Thursday vote on tax and spending bills that include a provision to lift the U.S. export ban. To keep the government going, President Barack Obama is certain to sign the bills, paving the way for crude shipments.

The potential U.S. supply to come onto the market would create more competition for international grades priced off Brent crude futures.

Brent futures this year have dropped 33 percent while West Texas Intermediate futures, the U.S. benchmark, have slipped 31 percent, with both grades falling on oversupply concerns and U.S. dollar strength. Brent's premium to WTI has slipped this week to the narrowest since January, the last time there was a push to remove the ban.

"Clearly a lifting of the ban benefits U.S. producers as it gives them a wider market for their crude, so it will be supportive for U.S. grades while being bearish for other benchmarks such as Brent," Virendra Chauhan, analyst at oil consultancy Energy Aspects said.

The United States eased the ban on exports in 2014 by allowing producers to ship out processed condensate cargoes, which have headed to Europe, South America and Asia.

However, shipments to Asia slowed this year as the narrowing Brent-WTI spread and higher freight costs closed the arbitrage window. The same would affect U.S. crude supplies to Europe.

"Given that prompt WTI-Brent spreads are trading in a narrow range and U.S. production is falling due to lower spending, the (policy) shift is likely to have limited impact on prices beyond initial knee-jerk reaction," Chauhan said.

The absence of infrastructure in the U.S. Gulf Coast to load oil onto large vessels and an unstable U.S. oil export quality means there will not be an immediate surge in exports, analysts and traders said.

"We have to monitor the price spreads for a bit longer. Now the market is too jumpy," a trader who deals with U.S. oil exports said.

(Reporting by Florence Tan; Editing by Christian Schmollinger)

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