WASHINGTON, June 25 U.S. energy markets marked a seismic shift on Wednesday after federal officials provided more clarity on what companies glutted with oil can ship to thirsty markets abroad, leading to expectations for a potential surge in shale oil exports.
News that companies can export a type of ultra-light crude if it has been minimally refined pushed crude oil prices higher, and triggered a realignment in energy stocks, with refiner shares sagging while those in several oil and gas producers jumped.
The U.S. Department of Commerce's Bureau of Industry and Security told Pioneer Natural Resources and Enterprise Product Partners on Tuesday that removing highly flammable gases from light oil, known as condensate, was sufficient processing to qualify the condensate as a "refined product."
Under U.S. law refined products are allowed to be exported, but most crude oil is not.
Higher oil prices are arguably unwelcome at a time U.S. gasoline prices are already high, putting a strain on consumers and the economy. The White House on Wednesday said the Commerce Department's ruling was not a change in policy.
"As the Commerce Department has said, oil that goes through a process to become a petroleum product is no longer considered crude oil," spokesman Josh Earnest told reporters in daily briefing.
The U.S. shale oil boom of the last five years has led energy companies and politicians to push for a reversal of the 40-year export ban. Drillers say the ban, at a time of sharply rising production, has led to a glut of domestic oil that could soon force them to slow down output.
The Wall Street Journal on Tuesday first reported that the Commerce Department, under growing pressure, had given export approval to the companies via a private ruling.
However, a Commerce Department official told Reuters on Wednesday that its ruling was a commodity class determination.
"They do not constitute a change in policy but are a description of what the regulations are and how they apply to a particular item," said Kevin Wolf, an assistant secretary of commerce for export administration.
Still, U.S. oil prices, which rose 58 cents to $106.66 per barrel, highlighted the greater scrutiny of a regulatory gray area. Regulations prohibit the export of condensate that has been produced directly from an oil field but allow it if the same type of oil emerges from a natural gas plant or a refinery.
Energy-hungry Asian countries, which get most of their oil from the Middle East, would welcome extra U.S. supplies.
The shale oil boom is expected by some estimates to make the United States the world's top crude producer, surpassing both Saudi Arabia and Russia - an outcome unimaginable a decade ago.
It has also led to a glut of light oil in Texas and Louisiana that is difficult to process there because refiners have invested billions of dollars to process heavier oils from Mexico and Venezuela.
It was not immediately clear how much condensate the companies would be able to ship, and when.
But Enterprise has the infrastructure in place to export processed condensate from its massive Houston storage facility, spokesman Rick Rainey said, and can start exporting the very light crude oil any time.
The condensate in question has long been run through equipment known as stabilizers, which shave off volatile natural gas liquids, in order to meet pipeline specifications. Stabilizers are common in the Eagle Ford shale region of Texas.
A lawyer who works for the oil refining industry downplayed the significance of the ruling.
"The decision to allow condensate exports frankly is not that big of a deal," said the lawyer who did not want to be identified, because his firm represents a variety of oil industry interests. "It doesn't look like many other companies will be able to use these decisions to their advantage," because a distillation unit is a piece of equipment requiring substantial capital investment, permitting, and specific crudes.
Citigroup oil analyst Ed Morse, however, deemed the ruling significant.
"The flood gates of exports will be opened now," he said, adding that some 200,000 to 300,000 bpd of U.S. condensate could be exported by the end of the year and that the volume could double in 2015.
Shares in Pioneer jumped 5.15 percent on Wednesday, those in Enterprise advanced by 1.35 percent and shares in several other U.S. oil and gas producers, especially those more weighted to condensate, also rose.
But shares of U.S. refiners, especially those most levered to light crude oil, dropped on fears of a rise in crude oil costs. Valero Energy Corp slumped 8.3 percent, and Alon USA Energy shed 6 percent. (Reporting by Timothy Gardner, Valerie Volcovici, Roberta Rampton and Jeff Mason in Washington, Joshua Schneyer in New York, Kristan Hays in Houston and Swetha Gopinath in Bangalore; Editing by Ros Krasny and Ken Wills)