US diesel export ban would hurt fuel markets
US President Donald Trump on Tuesday said he backed the idea of a diesel export ban as a way to lower prices that have hit record highs due to a global supply shortage.
But analysts and market watchers warn that such a measure would do little to ease high energy prices, and could worsen supply and economic disruptions around the globe.
Trump’s comments come as average US diesel prices have jumped to a record $6.5107 a gallon, according to AAA. Diesel is critical to the global economy because it powers transportation, farm equipment and the machinery used to make and move goods.
Shortages in the fuel can lead to price spikes that stoke inflation by raising the cost of moving everything from groceries and consumer goods to industrial materials already a major pain point for Trump and Republicans headed into the November midterm elections.
Why are diesel prices high?
Diesel prices have surged amid supply disruptions from Ukrainian strikes on Russia’s refineries and the US-Iran ?war, which has disrupted or halted trade along major routes including the Strait of Hormuz.
The US is a major exporter of diesel, and countries have increasingly turned to it amid disruptions abroad.
The US exported a record 1.6 million barrels per day of diesel in August, up from about 1 million bpd in February before the war began. Top buyers include Brazil, Chile, Mexico, Peru, Morocco, France and the United Kingdom, according to Kpler.
US on-road diesel inventories have fallen to 96.97 million barrels, nearly 13% under the seasonal average for the previous five years. The drop in inventories comes even as refiners in the US are running at about 97% of capacity.
How would a ban impact the market?
Major trade groups, including the American Petroleum Institute, oppose a ban on diesel exports.
“Restricting US diesel exports would wreak havoc on fuel markets at home and abroad, destabilize refinery operations and deepen a global refining crisis already putting upward pressure on US prices.
Gulf Coast refineries produce more diesel than the region consumes, while geography and infrastructure constraints prevent that surplus from simply being redirected to every US market that needs it,” the API said in a statement.
A ban on diesel exports would push up ?prices of diesel globally, while pushing down prices in the United States and hurting US refining margins, analysts warned.
What are the political and geopolitical implications?
Some Republican Senate candidates in the most competitive races for the November 3 elections called for administration to implement the export ?ban to try to alleviate high costs for Americans.
“It is more of political soundings than actual reality,” said Jim Mitchell, director of oil trading analytics at consultancy Wood Mackenzie.
While a diesel export ban could, in theory, lower prices in the United States, it would not ease tightness in Europe, which is structurally short diesel and relies heavily on supplies from the US Gulf Coast.
“That would seem pretty damaging to ?some key U.S. allies,” Mitchell said.
“A ban on US diesel exports, even if temporary, would have the same long-term effect as President (Richard) Nixon’s soybean embargo: the world would no longer view the United States as a dependable source,” Verleger said. In 1973 Nixon imposed a temporary soybean embargo that angered importers including Japan and, some analysts say, led to greater dependence on Brazil for the commodity.
