President Donald Trump is still weighing a ban on US diesel exports. He just sounds a lot less sure about it than he did a few days ago.
Reporters pressed him in the Oval Office on Wednesday on whether a decision had been made. Trump said his advisers believe a ban would bring diesel down, but that other prices could climb as a result. The biggest worry, in his words, is a "negative impact on gasoline." He still did not take the idea off the table.
That is a softer line than the one he took on Sunday, when he told Fox News the administration was weighing a ban "very seriously." Three days later, the doubts were doing most of the talking.
Pump prices are easing, but only a little
Diesel peaked at an all-time high of $6.53 on September 22. It has come down a bit since, yet truckers and farmers still pay far more at the pump than they did in early September.
| AAA national average | Oct. 1 | Month ago | Year ago |
|---|---|---|---|
| Diesel | $6.39 | $5.63 | $3.71 |
| Regular gasoline | $4.41 | $4.10 | $3.16 |
That puts diesel up 72% from a year ago, while gasoline is up about 40%. At the wholesale level, New York Harbor diesel futures traded near $4.67 a gallon on Thursday, roughly $1.55 above gasoline futures.
Supplies are thin, too. Distillate inventories, the category that covers both diesel and heating oil, dropped 2.3 million barrels in the week to September 25 and now stand at 105.2 million barrels, according to the Energy Information Administration.
Why a ban looks tempting
American refiners make more diesel than the country burns. S&P Global Energy puts net exports at roughly 1.5 million barrels per day. Holding those cargoes at home would boost domestic supply quickly, which is why Republican senators such as Iowa's Chuck Grassley have called for limits to protect farmers and truckers.
Why it could backfire
Refineries don't make diesel on its own. A barrel of crude yields gasoline, diesel and jet fuel together, and plants can only shift the mix so much.
Goldman Sachs has put rough numbers on the trade-off. While refiners still have spare tank space, every week of export curbs could take around 25 cents off a gallon of retail diesel. After the tanks are full, cheaper diesel would squeeze refining margins and plants would likely slow down. At that stage, the bank figures, each added week of a ban could tack about 30 cents onto a gallon of gasoline.
Daan Struyven, who co-leads commodities research at Goldman, made the point in a Bloomberg Television interview on September 23. Since refiners make the two fuels side by side, he said, a push to cut diesel output would leave less gasoline on the market as well.
Europe would pay a price too. Goldman expects wholesale diesel there to gain roughly $3 a barrel for each week American cargoes stay home.
Wood Mackenzie analyst Alan Gelder sees the same trap. In his view, a ban meant to help US drivers would probably end up raising what they pay overall.
The softer options on the table
Energy Secretary Chris Wright has said he would rather not use a "blunt hammer" on an industry as complex as refining. Yahoo Finance reports that officials are looking at three milder steps:
- Getting refiners to scale back diesel exports on their own
- Pausing the federal tax on diesel, which may need a vote in Congress
- Letting states take their own measures
A few states have moved already. Nebraska has stopped collecting diesel tax on farm and ranch vehicles for 90 days. Alabama has put enforcement of its tax-exempt diesel rules on hold for 120 days.
Washington is also drawing on the Strategic Petroleum Reserve again. The Energy Department plans to lend out 40 million barrels of crude through an exchange, which companies must later repay with extra barrels. It is the final slice of the 172 million barrels the US promised under an International Energy Agency emergency release. Bids are due October 6.
The US is not the only one guarding its fuel
Moscow has stretched its own diesel export ban to the end of October. And on Thursday, Reuters said PetroChina had stopped its October gasoline and jet fuel cargoes so it could keep more fuel inside China. CNBC said it could not confirm that report on its own.
That report helped turn crude around. Brent jumped about 2% to $100.23 a barrel, back above $100 after trading lower earlier in the day. WTI rose to $92.16. Brent's tight prompt market had already shown how scarce near-term barrels are.
What to watch
- Any White House decision on diesel exports, or on the excise tax
- SPR exchange bids on October 6
- EIA weekly inventory data on October 7, especially distillate stocks
- Heating oil demand in the Northeast as temperatures drop
For now, the administration seems to be looking for ways to ease diesel prices without touching gasoline. That is hard to do when both fuels come out of the same barrel.