Why a U.S. Diesel Export Ban Won’t Lower Fuel Prices

As the national average diesel price soared to a record $6.52 per gallon, the Trump Administration sent mixed signals this week about restricting U.S. diesel exports. The White House has denied that an export ban is in the works, even if President Donald Trump and Treasury Secretary Scott Bessent had hinted at the possibility hours earlier. Rumors and reports of a diesel ban sparked vehement opposition from the U.S. energy and manufacturing industries, while analysts say restricting exports would be a self-defeating exercise that would actually further raise fuel prices in America and undermine the U.S. economic and geopolitical strength. Why Diesel Prices Soared Despite the uptick in flows from the Strait of Hormuz, only 1 million barrels per day (bpd) out of an estimated up to 10 million bpd outbound flows are refined products, the rest is crude.Refinery capacity is constrained in the Middle East due to Iranian strikes on refineries and the trickle of fuel flows through Hormuz.Then there is also severely restricted capacity in Russia due to Ukrainian drone strikes at Russian refineries. Russia has banned diesel exports until the end of September and is likely to extend the ban through October. Executives at the top U.S. refiners estimate that 7-8 million bpd of petroleum products have been off the market for months, tightening global fuel supply, especially that of diesel. Refining fundamentals are very tight and getting tighter with the issues in Russia and the Middle East, Brian Mandell, Executive Vice President of Marketing & Commercial at Phillips 66, said on the Q2 earnings call in early August.“We have 7 million barrels a day of refineries down in Asia and the Middle East and another 1.4 million barrels down in Russia. And the refineries, depending on the damage and the ability to get spare parts, are going to take a good long time to get back online,” the executive added. Global refinery throughputs reached a summer peak of 81.4 million bpd in August, up by 960,000 bpd month on month. But this peak was 4.2 million bpd lower than a year ago, with losses spread across the Middle East, Russia, and crude importing economies in Asia, the International Energy Agency (IEA) said in its monthly report for September.Why A U.S. Export Ban Would BackfireAmid the global fuel crunch and record-high diesel prices in the U.S., some Republican Senators led by Iowa’s Chuck Grassley are calling for a ban on diesel exports as record-high diesel prices are hitting American farmers and truckers. The White House and former oil executive and incumbent Energy Secretary, Chris Wright, ruled out a ban on diesel exports, despite President Trump and Treasury Secretary Bessent entertaining the idea and saying hours earlier that the Administration is reviewing whether a ban is feasible. “The blunt tool of banning diesel exports definitely doesn't work,” Wright said on Wednesday. “If you can't export the diesel that comes out of our refineries, you run out of places to store it, and you have to reduce US refining, which would put upward pressure on gasoline prices and jet fuel prices,” he added. U.S. business, energy, and manufacturing groups share Secretary Wright’s view and urged President Trump to reject the idea of fuel export restrictions in a letter signed by three dozen industry associations including the American Petroleum Institute (API), the American Fuel & Petrochemical Manufacturers (AFPM), the National Association of Manufacturers, and the U.S. Chamber of Commerce. “Export bans would lead to less fuel production, tighter supplies, and rising costs for American families, farmers, and truckers,” the industry groups wrote in the letter. “We, and indeed virtually every expert in the fuels market, fully agree with Secretaries Wright and Burgum that an export ban would force reductions in refining utilization, increase prices for gasoline and jet fuel, and lead to retaliatory actions from other countries.” Today, U.S. refineries are producing about 5.3 million bpd of distillate fuel, while domestic demand averages about 3.6 million bpd, AFPM said last week in a brief explainer, “Why a diesel export ban would backfire”. If exports are banned, refiners cannot stockpile unlimited diesel, and they would be forced to cut production, not only of diesel but also of gasoline, as these fuels are produced together, the fuel manufacturers’ association said.“Less fuel production means tighter supplies and higher prices for both diesel and gasoline,” it noted. Moreover, U.S. regions depending on fuel imports, such as the Northeast, would face even higher fuel prices for all fuels ahead of winter because a U.S. ban would tighten diesel markets further, the U.S. industry associations said. Last but not least, America could lose its reliable supplier status and risk reducing its energy influence, they added. “If we pull back, other countries will step in, our influence will shrink, and our adversaries will gain ground. America’s energy exports are a source of economic and geopolitical strength,” the association said in the letter. AFPM last week noted that “Export bans do not create more fuel for Americans. They reduce U.S. fuel production, put upward pressure on prices, weaken energy security and hand market share to foreign competitors.” Analysts at Capital Economics summed it all up in the title of their latest analysis, “US export ban would add fuel to the diesel crisis”. By Tsvetana Paraskova for Oilprice.comMore Top Reads From Oilprice.comU.S. to Back Argentina’s First LNG Export Project With $6 Billion LoanJust One Commodity Vessel Left the Strait of Hormuz on WednesdayEurope’s Gas Prices Jump as Hormuz Standoff Drags On