Diesel prices hit record $6.53 ahead of midterm elections
President Trump said Tuesday he is considering restricting U.S. diesel exports as fuel prices climb to record levels ahead of November’s midterm elections, a move that blindsided oil industry officials who rushed to register their opposition. Trump raised the prospect on the sidelines of the United Nations General Assembly in New York, according to a report in The Wall Street Journal. U.S. diesel prices reached a record average of $6.53 a gallon Tuesday amid missile attacks that have disrupted refineries and trade routes in the Middle East and Russia. Diesel is used by commercial truckers, farmers and others to move everything from groceries to electronic gadgets to market.
American oil executives and lobbyists scrambled to oppose the proposal, which industry officials say could cost oil companies billions of dollars in lost revenue. Several industry figures called the president’s lieutenants and congressional Republicans, according to people familiar with the matter. People familiar with the matter said industry officials now believe it is inevitable the U.S. will move forward with some measure limiting their fuel shipments.
“I think we’ve invested too much in developing customers overseas, and this is the wrong signal,” said Dan Eberhart, chief executive of oil-field services firm Canary and a Trump donor.
The industry’s lobbying push has run into political headwinds from Republicans in contested districts. Trump effectively appeared to side with those Republicans over his oil allies. Sen. Chuck Grassley of Iowa and other Republicans urged Trump to impose a ban, saying high diesel prices were hurting farmers. Grassley advocated for a ban late Saturday, and the industry began urging Washington to dismiss the calls over the weekend.
Trump “wants to see gas prices at the pump fall and is evaluating all options on the table,” a White House official said. An energy consultant with ties to U.S. refiners said the industry’s hopes of fending off a ban were fading. “It’s all hands on deck,” the consultant said. “But it doesn’t matter. We’re not debating policy anymore. They’ve got to win a couple of key Senate races. The only way to do that is to put the export ban in temporarily.”
One concern the industry has is that a ban presented as temporary might stay on for longer, according to people familiar with industry thinking.
The U.S. diesel market has tightened as global supplies have been disrupted. Missile attacks have hit refineries and trade routes in the Middle East and Russia. Major exporters China, Japan and South Korea have reduced shipments, and crude supplies from the Strait of Hormuz waterway near Iran and Oman have stalled for months. The U.S. is now one of the few major suppliers of diesel on the global market, with U.S. refineries running near full capacity in recent weeks.
Industry executives and lobbyists told U.S. officials that banning U.S. diesel shipments even temporarily would cause international diesel prices to spike, lifting prices for a broad basket of goods the U.S. imports. Some worried other countries might retaliate by curbing supplies to the U.S. as they absorb higher transportation costs. Higher diesel costs would also curtail supplies of fertilizer and other chemicals farmers use, they argued.
According to S&P Global, an export ban on diesel would leave U.S. refineries with a large surplus of fuel and force them to cut production by almost two million barrels a day, or 12% of refinery runs. The firm estimates gasoline production could decline as much as 750,000 barrels a day. Some analysts think that figure would translate into a 25-cent-a-gallon increase in gasoline prices.
The oil-and-gas industry has refrained from publicly criticizing Trump even as energy prices soared and risked feeding into inflation. Some executives and administration officials have long held the view that Trump would not hesitate to turn his back on his oil allies if political circumstances demanded it. Veteran energy advisers have said the industry sees an export ban as a red line and would not accept it passively. “Bad idea,” said Steven Pruett, chief executive of Texas oil producer Elevation Resources. “Ultimately, it will backfire on American consumers as it will disrupt the natural flow of oil and petroleum products.”
In the second quarter, earnings at major U.S. oil companies surged as they benefited from record refining margins. U.S. refineries have been running near full capacity in recent weeks, leaving them with little spare capacity should an export ban take effect.