The battle lines have been drawn over the issue of LNG exports, with major natural gas producers like ExxonMobil (NYSE: XOM) in favor of expanded exports, while natural gas consumers like Dow Chemical (NYSE: DOW) have expressed their opposition. A similar battle is shaping up between those who would like to see the US relax the decades-old ban on crude oil exports and those who want to see that ban remain in place. ExxonMobil is once more on the side of allowing more exports, while Valero (NYSE: VLO) seems to be adopting the role of Dow Chemical in supporting the export ban.

The crude oil export ban dates to the the Energy Policy and Conservation Act (EPCA) of 1975, an energy bill that contained a number of measures designed to mitigate future oil crises. The 1973 oil crisis had hit the global economy hard, and Congress established some proactive measures with EPCA that continue to shape US energy policy to this day. In addition to the crude oil export ban — which effectively bans crude oil exports to all countries besides Canada — EPCA established the Strategic Petroleum Reserve (SPR) and Corporate Average Fuel Economy (CAFE) regulations. (For a detailed explanation of the rules governing crude oil exports, see Short Supply Controls in the Export Administration Regulations).

Although the US became a net exporter of finished products (e.g., diesel, gasoline, etc.) in 2011 for the first time since 1949, we still import a lot of crude oil. Net US imports of crude oil and finished products have been falling since 2006, when they briefly exceeded 13 million barrels per day (bpd), but net imports for 2013 were still above 6 million bpd — about the same level as in 1975 when the crude oil ban was enacted.

So if the US is still importing so much crude, why is there a sudden interest in exporting it? One reason is that the US oil supply picture is rapidly changing. In 1975 US crude production had been on the decline for five years, and crude oil imports were on the rise. At present US oil production is rising at the fastest rate in US history, and many oil producers, analysts, and politicians are eyeing the possibility that the US might eventually produce more oil than we consume.

But that’s not the main reason that oil producers want the ban lifted.

Over the years, US crude oil has gotten progressively heavier and more sour (meaning it contains larger hydrocarbon molecules as well as more sulfur.) Globally, heavy crude production increased in places like Canada, Venezuela and Nigeria. A wide price differential developed between heavy, sour crudes and light sweet crudes like WTI and Brent. Because crudes that are heavy and/or sour can produce about the same amount of finished products as lighter, sweeter crudes, refiners had a strong financial incentive to process the discounted crudes.

So US refiners spent billions of dollars installing fluid catalytic crackers (FCCs), cokers, and hydrotreaters that are needed to process heavy sour crudes, and many of them managed to do well even as rivals that could only process premium crudes struggled. And after investing all of that money into processing the heavy crudes, refiners want to continue to run those slates. The economics of running Bakken or Eagle Ford crudes in a heavy oil refinery are far less appealing than running a heavy Canadian or Venezuelan crude.

The result is that US refineries are quickly reaching a limit in the volumes of light, sweet crude they care to process. This is depressing the price of domestic oil, to the benefit of refiners that have easy access to that oil, and to the detriment of oil producers. Oil producers would therefore like to export that premium oil and receive premium prices, while heavy oil refiners would simply continue to import oil more suited to their needs. But there are forces arrayed against those seeking an end to the ban.

While oil producers can’t export the crude they produce, refiners can certainly buy the crude and export the finished products. Thus, they benefit from crude prices that are depressed relative to finished product prices. The status quo will continue to benefit oil refiners like Tesoro (NYSE: TSO), HollyFrontier (NYSE: HFC), and Valero — which has come out in opposition to ending the ban. Other refiners like Phillips 66 (NYSE: PSX) and Marathon Petroleum (NYSE: MPC) have come out in favor of lifting the ban.

An integrated oil company with both domestic crude production and domestic refining would probably come down on the side of eliminating the ban. Domestic oil producers will be universally in favor of eliminating the ban, and you could see significant benefit to portfolio holdings like Carrizo Oil & Gas (Nasdaq: CRZO), Oasis Petroleum (NYSE: OAS) and EOG Resources (NYSE: EOG) if the ban is lifted.

The single biggest obstacle in eliminating the ban is that it actually requires Congress to repeal the short supply controls. Because allowing exports would allow producers to realize higher prices for their crude, some members of Congress fear the effect on consumers.

Republican Senator Lisa Murkowski of Alaska has indicated that she will introduce legislation to end the ban, while Democratic Senator Robert Menendez of New Jersey has signaled his opposition because of the potential for raising US gasoline prices. With Democrats controlling the Senate — and with some senators staunchly opposed — it’s hard to imagine that legislation to repeal the ban would have a smooth path to a decisive vote.

You can also bet that the environmental movement that rose up against the Keystone XL pipeline expansion will gear up to fight any attempts to repeal the ban. Given that the environmental protests against Keystone XL have paralyzed the Obama Administration into inaction on that issue, it’s a safe bet that the administration won’t be rushing to repeal the ban, even though the President can allow situational exports without Congressional approval.

My prediction is that the ban will not be lifted in 2014, but we will keep you apprised of the story as it evolves. If US oil production continues to expand, the pressure to lift the ban will grow. The odds could shift significantly pending the outcome of this year’s congressional elections, as well as the 2016 presidential campaign.

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