Of all the hazards the oil refining industry routinely deals with, the sentiment of its investors may be the most volatile.

That was on display again last week when refining shares tanked on the news that the US government had reinterpreted a longstanding ban on crude exports to enable the routine shipping overseas of the ultralight crude known as oil condensate after minimal processing.

Condensate is a less dense, more volatile variety of oil that typically exists as gas within the reservoir but condenses into a liquid at the lower surface pressure and temperature. On the API gravity scale of density, condensate is generally anything above 45 degrees, though definitions vary. Gasoline is 50 degrees, and in the aggregate the condensate produced in the US is likely a bit lighter than that. Condensate has on occasion been poured straight into the gas tank of a car, though I would not recommend it.

Oil condensate accounted for 15 percent of the booming US crude production from shale last year thanks to its prevalence in the rapidly developing Eagle Ford basin, where it makes up half of the current output. It’s also the fastest growing component of the shale production surge.  US condensate output increased 32 percent in 2013, though growth is expected to moderate to 17 percent this year and 7 percent in 2015. (All of the numbers and the forecast from the US Energy Information Administration.)

That means as much as 1.2 million barrels per day of domestic oil concentrate supply by now. (Some private estimates are significantly lower.) And though condensate is easier to process into fuel than heavier crudes, its energy content is also lower, making it less attractive to refineries.

That’s especially true for US refineries upgraded over the years to process the heavier imported crude. For them, condensate is a suboptimal input. To the degree that they want it at all, it’s for mixing with heavier crude to save money. But as the next chart shows refiners’ interest in condensate simply hasn’t kept up with its profusion.

Source: company presentation

Other estimates of the condensate discount are less dramatic.  EAI, an energy consultancy based in Colorado, pegs the past month’s discount to West Texas Intermediate (WTI) at $6.60 to $11. 60, depending on density. That’s comparable to the markdowns on light, sweet Bakken crude, and certainly won’t discourage further drilling in the Eagle Ford’s condensate window.

With the rate of increase in concentrate production probably peaking and additional processing capacity only starting to come online, it’s no surprise the Commerce Department advised Pioneer Natural Resources (NYSE: PXD) and Enterprise Products Partners (NYSE: EPD) that they could export condensate after minimal field distillation.

This is holding action trying to avert a bigger condensate glut, and the risk that even deeper discounts will discourage further drilling. Drillers will benefit to the degree that they can get better prices on some of their surplus overseas — perhaps at Asian petrochemical refining plants. 

But refiners aren’t likely to miss the exported condensate given that production is still growing briskly and especially in light of the fact that their indifference dictated the discount on the stuff in the first place.

The bigger risk to the refining industry is that the same minimal processing for export loophole could be expanded to include other grades of crude, as government sources told Reuters late last week. That could continue to erode the recently shrunken discount on domestic grades of crude relative to the international benchmarks.   

In an ideal world, the crude export ban, a relic of the 1970s oil shocks, would disappear quickly in its entirety as an ineffectual and counterproductive regulation. Rather than keeping US fuel costs low it mostly lifts refiners’ margins at the expense of drillers.

Refiners have lobbied to keep the restriction in place, and any politician promoting crude exports risks blame for gas pump prices no matter what they are down the line. That’s why the Obama Administration was at pains last week to present its advisory letters as continuing a longstanding policy. The export bottleneck is a long way from being gone.

And once it does go, whether all at once or through a series of incremental changes, investors are likely to discover that US refiners won’t fall apart as a result. They will still enjoy steadily expanding access to the cheap heavy crudes pouring out of Canada, along with cheap natural gas, the most efficient and advanced plants in the world and proximity to the fast-growing Latin American market.

In the wake of the decision last week, there was speculation that the new rules might derail a panoply of crude processing projects planned for the Gulf Coat. More probably, the gush of Eagle Ford crude will require a variety of processing solutions so long these remain an export requirement.

Exports of crude to Canada are already permitted, and picking up pace, yet they’re dwarfed by exports of refined fuel, primarily to Latin America. Refiners don’t need Eagle Ford condensate to prosper. They only need their geographical and economic advantages over foreign rivals. These are likely to survive while the domestic crude supply is growing strongly, even if some of it is shipped abroad in its natural state.