World oil prices hit an 11-year low Monday, plunging again on the possibility of an even bigger glut of crude oil on the global market as the United States ends its 40-year ban on oil exports.
The global benchmark price for Brent crude drilled in the North Sea dropped 2 percent to $36.16 a barrel, a price not seen since mid-2004, while the price for the lighter, sweet crude drilled in the U.S. dipped 1.4 percent to $34.25.
London oil analyst Kash Kamal of Sucden Financial said world prices could fall further, after already dropping 65 percent from their peak figures a year ago. He said Monday's drop "was attributed to last week's final approval of U.S. legislation which lifted the the 40-year ban on crude exports, which will only see more crude oil flood the global market."
In addition, as Western economic sanctions against Iran are lifted in the coming months as part of an international nuclear control agreement, Tehran says it will begin exporting oil again.
U.S. President Barack Obama, like other Democrats a long-time opponent of lifting the U.S. ban on oil exports, agreed to the policy shift as part of an annual budget pact with Republican opponents in Congress, who for years have called for an end to the ban. The Republicans in turn agreed to extend tax credits for wind- and solar-powered ventures favored by the president.
The end of the U.S. export ban could eventually benefit U.S. oil giants Exxon Mobil, ConocoPhillips and Chevron, who long have sought the repeal of the ban that was imposed after Arab countries imposed an embargo on oil sales to the U.S. in the early 1970s that sent gas prices for motorists soaring in the United States. Arab members of the Organization of the Petroleum Exporting Countries imposed their embargo to protest of the U.S. decision to re-supply Israeli forces during the 1973 Arab-Israeli war.
But world oil production has changed markedly in the last four decades, with the U.S. now producing more oil, about nine million barrels a day, which is somewhat more than it imports. That lessens the possibility that sending U.S. oil into the world market would hurt the U.S. economy or endanger its national security.
With the current low world prices, analysts say that lifting the ban is not likely to prompt U.S. oil producers to send much if any oil to the global market for months, even years if the price of crude stays low for an extended period. Numerous U.S. oil producers have already curbed their drilling operations and some could go out of business because of the current low prices.
But analysts say that lifting the embargo could give oil companies more flexibility in their operations, as well as bigger profits when oil prices increase again.
Ryan Lance, ConocoPhillips' chief executive, said that lifting the export ban was "particularly important at a time when our industry is experiencing a period of extreme volatility and uncertainty."
George Baker, head of a group oil producers that lobbied for lifting the embargo, said, "Now that we have leveled the playing field, the United States finally has an opportunity to compete and realize our nation's full potential as a global energy superpower."
The global glut has been caused by a variety of factors, including weakening economies in some parts of the world, which means the demand for oil is lessened. In addition, U.S. oil production from shale deposits has risen markedly in the last several years, cutting its need for imports, while OPEC member states have not trimmed their production in the face of falling prices, as they often have in the past.