The Diesel Ban: what analysts expect at home and abroad

Transcript

On September twenty-first, a gallon of diesel in America cost six dollars and fifty-three cents, on average. A record. Now Washington is weighing a way to bring it down: stop selling diesel to the rest of the world.

How we got here. The Strait of Hormuz has been mostly shut since March. Russia is curbing its own fuel exports. So the world turned to American refineries. This summer, U.S. diesel exports hit a weekly record, near two million barrels a day.

America’s diesel customers. Where does it go? Brazil is the biggest buyer. Then Mexico, and Chile. And Europe, which now takes almost half of it, up from thirty percent last year, according to Wood Mackenzie.

The pump. At home, the pump kept climbing. Diesel beat its old record on September fourth. It crossed six dollars a week later. Twenty-eight states hit records at once. In California, seven dollars and ninety-eight cents.

The ban is floated. Then came the idea. Senator Chuck Grassley asked why the president doesn’t embargo diesel exports, as presidents did in the seventies. On September twenty-second, President Trump said he had called for a ban. The Treasury said a full or partial ban was being studied.

The first drop. What would a ban do? At first, prices fall. J.P. Morgan estimates that a thirty-day halt, with a Jones Act waiver, would pull retail diesel down to four dollars and seventy cents a gallon, within fifteen days.

The tanks fill. Then the barrels have nowhere to go. Wood Mackenzie says seven hundred thousand barrels a day would back up into storage. Estimates of when the tanks fill up run from three weeks, at Morgan Stanley, to about two months, at Citi.

The refineries slow. Once they are full, refiners cut back. Wood Mackenzie estimates by more than two million barrels a day, or twelve percent of U.S. crude runs. But one barrel of crude makes gasoline, diesel and jet fuel together. Cut one, and you cut all three. Its analysts warn the pain could move to the gasoline pump.

The market’s verdict. Traders are already pricing it in. On September twenty-fourth, U.S. crude traded twelve dollars below the global benchmark, the widest gap since May. Fewer refinery runs means less demand for American oil.

Europe. Abroad, prices move the other way. Europe’s diesel premium over crude hit a record, above ninety-five dollars a barrel. Under a ban, Wood Mackenzie sees European diesel margins twenty-seven percent higher. China has the only big pool of spare refining capacity, and it may choose not to help.

Latin america. Latin America has even less room. In August, American fuel covered thirteen percent of Brazil’s diesel, as its planting season began. By April, Mexico’s diesel stocks had fallen below six days of supply. Peru and Ecuador have little storage at all.

What analysts expect. Put the estimates together. Diesel at four seventy, for a few weeks. Tanks full in three to eight weeks. Refinery runs down twelve percent. European margins up twenty-seven percent. And a risk that gasoline pays the bill.

Where it stands. So where does it stand? The White House denied it was preparing a ninety-day ban. Energy Secretary Chris Wright says nobody wants a blanket ban. The talk has turned to keeping more diesel at home. More than thirty business groups have urged the president to reject export limits. And diesel is still six fifty.

Relief now, bill later. So the choice on the table is a trade. A few weeks of cheaper diesel at home, against tighter fuel almost everywhere else, and maybe at the gasoline pump. Analysts expect the relief to come first. And the bill after.