Oil traders are past masters at handicapping geo-political risks, from war in the Middle East to resource nationalists in Latin America. Lately, they face another confounding political landscape: Washington.
As a bounty of shale oil transforms the trading landscape across North America, U.S. policymakers are being confronted with a host of issues that hold immediate and material implications to energy companies, investors and traders.
While energy policy has typically moved at a steady, stately pace for much of the past few decades, Washington is now grappling with a host of pressing questions that will affect oil prices: easing a crude oil export ban that could raise domestic crude prices; adjusting ethanol quotas in order to curb gasoline rates; imposing new rules on tank car safety that could slow the nascent oil-rail boom.
These issues are coming to the fore amid wider policy shifts under President Barack Obama that have forced oil traders to pay closer attention to what's going on in Washington, a place many find hard to pierce.
"When you think about the long-term viability of the U.S. energy boom, whether its fracking or infrastructure, policy questions are coming into play," said Robert McNally, president and founder of The Rapidan Group, an advisory firm.
"There is definitely more attention and interest on part of oil market participants," said McNally, who worked for hedge fund maven Paul Tudor Jones before a two-year stint as senior energy advisor to President George W. Bush.
Much of the industry has been caught out in recent years by a number of unexpected decisions, from Obama's more liberal use of strategic petroleum reserves in 2011 to the drawn-out battle over the TransCanada Corp's Keystone XL pipeline.
After last October's abrupt move to cut back annual ethanol targets, despite a widely supported law that required them to rise, over 300 people rushed to an Environmental Protection Agency meeting in December to discuss the issue. Barely a dozen had turned up at a similar meeting a year earlier.
Greg Armstrong, Chairman and chief executive officer of Plains All American Pipeline, vented his frustration over unpredictable U.S. policy when talking to analysts this month about whether Washington might ease the de facto ban on exporting crude oil.
"Well, in general, if you gave me a choice, we tried to predict what our government is going to do and what our weather is going to do, I'd rather predict the weather," he said. "It's erratic but more logical."
Amid one of the most surprising oil booms in history, it is policy and not geology that may dominate discussion at this week's IHS CERAWeek conference in Houston.
A decade ago it was the California electricity crisis and ensuing natural gas trading scandal that put the focus on Washington, as federal regulators rushed to impose new rules to restore order to markets and limit malfeasance. After 2008, it was broad financial reforms that upended market practices.
The real attention on Washington began three years ago, when President Obama helped convince global consumer nations to tap into strategic reserves amid tumult in Libya, injecting 60 million barrels into the market and helping tame prices.
After that, traders were riveted to the U.S. and European drive to toughen sanctions on Iran, taking as much as 1 million bpd of exports off the market. A few months ago, a landmark deal led to easing sanctions, allowing a bit more oil to flow -- at least for now. Some in Congress have pushed for tougher curbs on Iran, adding to the uncertainty over supply.
Last year it was the natural gas market, with traders, analysts and energy companies waiting to see if and when the Department of Energy would allow greater exports of liquefied natural gas (LNG). Since May, five multibillion-dollar projects have been given the greenlight, easing some concerns.
Now it's oil's turn, as the swift and unexpected emergence of shale production forces Washington to weigh in on questions related to transportation and logistics infrastructure.
"There is always some measure of policy uncertainty as government takes time to develop new rules and regulations, but there are an especially large number of energy policies that require a rethink today as a result of the rapid shift in the U.S. energy landscape," says Jason Bordoff, director of the Center on Global Energy Policy at Columbia University and a senior White House energy adviser until late 2012.
EXPORTS, RAILROADS AND THE JONES ACT
Topping the list right now is a debate over the U.S. law barring crude exports to countries other than Canada, a ban imposed after the Arab oil embargo that many producers now argue is an unnecessary relic of a bygone era.
While no one is predicting a full-scale repeal any time soon, some believe that officials could use existing exemptions in the law to allow some oil to flow abroad. News this month that U.S. authorities had allowed some foreign crude to be re-exported to Europe sent a tremor through oil markets.
Traders at Connecticut-based commodity merchant Freepoint Commodities have talked about the possibility of oil exports.
"The conversation ends with: 'okay, who thinks this can happen?' And then your desk has a debate about the probability of exports being allowed, and nobody will raise their hand," says Brison Bickerton, head of strategy at the firm.
"How do you take the conversation further and talk about actual investments?"
Another big question for domestic traders is how hard and when transportation regulators will crack down on shipments of light Bakken crude by rail after a series of fiery derailments. Some say older, faulty tank cars are to blame; others suggest that the ultra-light nature of Bakken oil may be responsible.
Rail operators and regulators have rushed out measures over the past few weeks in the hope of reassuring the public and politicians that moving oil by rail is safe. But in doing so, they have also put oil traders on high alert for anything that might slow the flow of up to 800,000 bpd of Bakken trains.
On Friday, U.S. oil prices abruptly jerked 60 cents higher on a rumor that regulators had shut down two terminals due to non-compliance; regulators denied it.
Still more issues may be dragged into the policy fray.
East Coast refiners are stepping up age-old complaints about the Jones Act, a century-old law that forces all domestic freight to be carried on U.S.-flagged, -crewed and -built vessels. Surging Jones Act tanker rates make it too costly for many refiners to bring cheap Texas crude up the coast.
That could have major implications for companies like Kinder Morgan Energy Partners, which paid nearly $1 billion to buy a fleet of Jones Act tankers in December. Losing the Jones Act entirely would have a "material negative effect" on top inland barge operator Kirby Corp, the firm says in a quarterly securities filing; but it also says that it doesn't expect the law to be eased "in the foreseeable future."
Copyright Reuters 2014.