The US Congress has abolished a 40-year-old ban on crude oil exports as part of an omnibus budget bill – a largely unexpected move that could ultimately benefit the troubled global oil market.

Introduced in 1975 as a way to control prices and supply on the domestic market, the ban had been criticised by shale oil producers who, due to waning domestic demand, needed access to international markets to cover their expensive production costs.

Discontentment accelerated in 2015 as the American sector was hit by the dramatic drop in oil prices, the effect of which was accentuated by OPEC’s refusal to cut output. As a result of these negative market conditions, they were forced to decrease production, bringing the number of oil rigs from 1,600 in 2014 to around 540 currently.

Despite having expressed satisfaction with the restrictive oil policy shortly before, the US started relaxing it in August 2015 by approving an oil swap deal proposed by Mexico, which asked for 100,000 barrels a day of American light crude oil in exchange for heavier Mexican oil – a decision which surprised analysts, but foreboded the recent U-turn.

The addition of the light crude oil produced by the US to international markets will increase the mix of oil available to various refineries around the world.

Speaking to GTR last July, Ben Lett, a Texas-based managing director in Bank of America Merrill Lynch’s (BofAML) energy investment banking group, said US oil exports “should be allowed for efficient use of global refining infrastructure”, echoing a BofAML report which found that removing the ban would bring the gap between international (Brent) and US (West Texas Intermediate or WTI) prices from US$7.4 to US$3 a barrel by 2017.

The predictions turned out correct, and even slightly pessimistic: after trading at a significantly lower price than Brent since around 2010, WTI reached parity today (December 23) at around US$36.5 a barrel, as WTI enjoyed the export ban removal boost and Brent continued its prolonged downward trend.

Though price parity means US oil will not be perceived as more competitive than OPEC oil from a financial standpoint, the addition of the light crude oil produced by the US to international markets will increase the mix available to various refineries around the world.

This should help improve the efficiency of the oil market – a much-needed boost as the Chinese slowdown and expected come-back of Iranian oil in 2016 have led the International Monetary Fund (IMF) to forecast a price drop to as low as US$20 a barrel.