Diesel hits $6.40 a gallon as midterm elections approach
The Trump administration is weighing whether to ban some U.S. fuel exports as a way to contain a historic rise in fuel prices that, according to the WSJ, has Republicans on edge ahead of November’s midterm elections. The national average for a gallon of diesel topped $6 for the first time last week and now sits at $6.40, up 95 cents in the past month, and prices are expected to keep climbing as farmers prepare for harvest season and large parts of the Northeast are less than a month away from burning heating oil to stay warm.
Senate Majority Leader John Thune (R., S.D.) said Tuesday he is open to exploring a ban. Rep. Tim Burchett (R., Tenn.) has proposed implementing export controls on diesel. Cabinet members had long shot down the idea in private meetings with oil-and-gas executives and in public statements, but more recently they have appeared to leave the door open to potential restrictions.
Energy Secretary Chris Wright, asked in a CBS interview earlier this month whether an export ban was off the table, declined to rule it out. At a G-20 event in Houston this week, Interior Secretary Doug Burgum said the administration would consider an export ban if it thought it might lower prices, but he said that wasn’t the case. “We’ll do anything that helps the price at home, but we’re also going to be smart about how we do that,” he said. A White House official said the ban hadn’t been considered to be a viable option.
The Iran and Russia-Ukraine wars are both taking a toll on the global refining complex. Missile strikes have stunted refineries in the Middle East, and Ukrainian drones have struck a number of fuel-making plants in Russia. As a result, much of the world is tapping the U.S. for extra supplies. The U.S. has some of the largest refineries globally, with huge complexes on the Gulf Coast and in the Midwest and California. America produces more fuel than it consumes, and refiners have historically shipped large amounts abroad to chase higher prices. As refiners increase exports, that puts pressure on prices at home because less fuel is available. In theory, forcing companies to keep the products within the U.S. would lift supplies and lower prices.
A ban would likely target diesel, which has come in short supply globally, and probably would be short-lived to avoid broader disruptions. Some energy advisers say the Trump administration could pursue a partial ban, for instance cutting authorized exports by a certain percentage, or tie exports to inventory levels — as commercial inventories fell past a certain threshold, so would refiners’ export allocation.
The U.S. imposed a 40-year ban on crude oil exports in 1975 in the aftermath of the Arab oil embargo, when the country relied heavily on foreign crude for its refineries. The shale revolution made the U.S. the world’s largest oil producer, and Congress lifted the ban in 2015. Banning crude exports wouldn’t bring much relief to Americans because the most acute chokepoint is the lack of global refining capacity to transform crude into fuel — a shortage that has lifted diesel prices worldwide, including in the U.S.
American fuel makers produced more than 5.5 million barrels a day of diesel and renewable diesel on average over the past four weeks, according to the Energy Information Administration. At the same time, U.S. companies exported about 1.7 million barrels a day of excess diesel that stateside truckers, farmers and other commercial shippers didn’t consume.
Analysts and oil executives say curtailments could have unintended consequences that would likely end up increasing prices domestically. Removing those barrels from global circulation could temporarily ease domestic prices while putting pressure on buyers in Europe and Asia to seek supplies elsewhere. But eventually, U.S. refineries are likely to account for the drop in demand by curtailing the amount of crude they process daily to make diesel and other fuels such as gasoline and jet fuel, said Andy Lipow, president of Lipow Oil Associates in Houston.
“Shortages would develop in those product categories, and I would expect higher prices at the pump,” Lipow said. David Goldwyn, a former special energy envoy for the Obama administration and president of advisory firm Goldwyn Global Strategies, said he doubts the Trump administration would risk angering the oil industry and other key players in the Republican base. “Ultimately, it just works for a couple of months, and then you get higher prices anyway,” Goldwyn said. “I think they certainly know that — whether they have the discipline is another matter.”
Billionaire oilman Harold Hamm told reporters Wednesday that he wouldn’t support an export ban. “I think that open trade and open exports certainly have to continue,” Hamm said. “That’s not going to help, putting a ban on exports. It’ll just jack the price up further.”