The Trump administration has raised the issue of banning diesel exports following the increase in diesel prices to $6.52 per gallon. However, this action has faced strong reactions from the energy and manufacturing industries in the United States. Analysts believe that export restrictions could lead to further price increases and weaken the economic and geopolitical power of the United States.
Current State of the Diesel Market
Despite increased oil flows from the Strait of Hormuz, only 1 million barrels of the 10 million barrels of daily export flows are refined products, while the rest is crude oil. Refinery capacity in the Middle East is under pressure due to Iran's attacks on refineries and restrictions on fuel flows from Hormuz. Additionally, refinery capacity in Russia has been severely limited due to Ukraine's drone attacks on Russian refineries. Russia has banned diesel exports until the end of September, with the possibility of extending this ban into October.
Senior executives of major U.S. refineries estimate that 7 to 8 million barrels of petroleum products have been out of the market for a long time, tightening global fuel supply, especially diesel. Brian Mandell, Executive Vice President of Marketing and Trading at Phillips 66, said in second-quarter earnings calls, "We have 7 million barrels per day out of refineries in Asia and the Middle East, as well as 1.4 million barrels from Russian refineries. Depending on the extent of the damage and the availability of spare parts, it will take time for these refineries to return to normal operations."
Consequences of the Diesel Export Ban
Under pressure from high diesel prices and fuel shortages, some Republican senators, including Chuck Grassley from Iowa, have called for a ban on diesel exports to help American farmers and truckers. However, the administration and former Energy Secretary Chris Wright, now an executive, have rejected this ban. Wright said on Wednesday, "The blunt tool of a diesel export ban will certainly not work. If you can't export the diesel produced at your refineries, you will face storage shortages and have to cut production, which will lead to higher gasoline and jet fuel prices."
U.S. trade and energy groups also agree with Wright's view and have urged Trump to reject the idea of fuel export restrictions. In a letter signed by three dozen industry associations, including the American Petroleum Institute and the Fuel and Petrochemical Manufacturers Association, they wrote: "A ban on exports will lead to reduced fuel production, tighter supply, and increased costs for American families, farmers, and truckers."
According to the Fuel Manufacturers Institute, U.S. refineries currently produce about 5.3 million barrels of diesel fuel per day, while domestic demand averages about 3.6 million barrels. If exports are banned, refiners will not be able to store diesel indefinitely and will be forced to cut production.
Ultimately, the United States may lose its position as a reliable supplier and reduce its energy influence. These associations added in their letter, "If we retreat, other countries will fill our place, and our influence will diminish." Analysts believe that the export ban will lead to reduced fuel production in the United States and increased prices.
