A proposed U.S. diesel export ban, intended to lower domestic prices which recently hit a record average of $6.5107 per gallon, is largely seen by analysts and market watchers as a measure that would do more harm than good. While it might temporarily reduce prices for some U.S. consumers, particularly along the Gulf Coast and in the Midwest, it would likely exacerbate the global diesel shortage, potentially increasing global prices by as much as 100%. The U.S. currently exports a significant amount of diesel, with record highs of 1.6 million barrels per day in August according to Kpler, and about 1.5 million barrels daily according to the U.S. Energy Information Administration.
Such a ban could have several negative consequences. Refineries would likely be forced to reduce their run rates, leading to decreased production not just of diesel but also of other refined products like gasoline and jet fuel, thereby driving up their prices. This reduction in refinery activity would also negatively impact U.S. refiners, who would see narrowed margins. Additionally, the American Petroleum Institute (API) opposes a ban, arguing it would worsen the situation by exacerbating refining challenges and ultimately hurting consumers.
Internationally, a ban would deepen Europe's diesel shortage and strain U.S. ties with allies. Countries in Latin America, heavily reliant on U.S. diesel imports, could face severe supply chain disruptions, impacting agricultural production and potentially leading to higher grocery prices for American consumers. While domestic diesel inventories, currently low, might increase, the West Coast of the U.S. could experience higher prices as they compete with global buyers for a smaller supply of non-U.S. diesel.
Instead of an export ban, other measures have been suggested to ease diesel prices. These include extending the waiver of the Jones Act, which mandates U.S.-flagged vessels for domestic shipping, and temporarily waiving a federal rule requiring a certain amount of renewable fuel in blends, which could lower prices by $0.10 to $0.20 per gallon. Another long-term solution involves ensuring the reopening of critical waterways like the Strait of Hormuz, which previously carried a fifth of global oil supply.
