The federal government of the United States is seeking to increase the supply of a type of red diesel used in agricultural and construction industries. This action is aimed at reducing price pressure on consumers while also exploring alternatives to the ban on diesel exports.
Red Diesel and Tax Exemption
Red diesel, also known as off-road diesel, is distinguished from regular diesel by its red color. This type of fuel is exempt from federal taxes, which is why its price is lower than that of regular diesel offered for public use. Given the recent price pressure on diesel, new studies indicate that increasing the supply of red diesel could help reduce prices.
Impact of War and Exports
Diesel prices in the United States have reached historic highs, and due to the ongoing war between the United States and Iran, which has now entered its seventh month, this price pressure has intensified. With restrictions on oil and fuel exports from the Gulf, American refiners have been forced to increase processing rates to fill the supply gap. As a result, exports of crude oil and fuels to Europe, which is facing local refining capacity shortages, have increased.
However, this increase in exports has also contributed to rising fuel prices domestically. Diesel prices earlier this month exceeded $6.50 per gallon and have now decreased to $6.45 this week. In this context, President Donald Trump has emphasized his support for the ban on diesel exports, while Energy Secretary Chris Wright believes that this ban could have the opposite effect.
Analysts warn that if diesel exports are halted for 90 days, refiners must first store their available volumes and then, with reduced storage space, lower their operational rates. This reduction in rates could harm gasoline supply and lead to an increase in its price.
Ultimately, the United States is currently producing 5.1 million barrels of diesel daily, which exceeds the daily consumption of 3.6 million barrels. Additionally, the average diesel export is 1.2 million barrels per day. Despite this, supply pressures in the Middle East are impacting diesel prices in the United States.
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