U.S. diesel accounted for more than 60% of EU imports in August
The price for October delivery of diesel in Rotterdam surged more than 6% on Tuesday after President Trump said at the United Nations that he would support a U.S. diesel export ban, then partially retreated the same day after U.S. Energy Secretary Chris Wright suggested an outright ban was unlikely — before jumping again to near a record high. European Union officials said Wednesday they are in talks with the Trump administration to head off potential U.S. export controls on diesel.
European Commission spokesman Olof Gill said the bloc expects to be consulted before any restrictions take effect. “We expect close partners to consult each other before taking measures that affect shared markets,” Gill said.
The debate marks a reversal from a year ago, when Trump threatened tariffs on European countries unless they bought more U.S. energy exports. Now the administration faces pressure from vulnerable Republicans ahead of the midterm elections to bring down domestic fuel prices, where the national average has topped $6.50 a gallon.
The bloc has been purchasing U.S. diesel, crude oil and liquefied natural gas that it once bought from Russia and the Middle East. The European Union’s imports of U.S. crude and oil products were up 30% in the first half from a year earlier, while gas imports were up 18%.
A quarter of the EU’s diesel imports came from the U.S. from March through July — and that figure jumped to more than 60% in August. Houthi attacks on Saudi refineries near the Red Sea shut down one of the remaining suppliers for Europe that hadn’t already been hit by the U.S. war with Iran or Russia’s war with Ukraine.
Diesel prices swung wildly throughout the week on conflicting signals coming from the Trump administration. The price for October delivery of diesel in Rotterdam surged more than 6% after Trump voiced support for the ban at the United Nations. It fell after U.S. Energy Secretary Chris Wright suggested that there wouldn’t be an outright ban on exports, but then jumped again to near a record high. An outright ban on U.S. exports could force consumers of all stripes to cut back purchases sharply.
European buyers would likely outbid those in Latin America, which has long been the main purchaser of U.S. diesel exports, and in Asia, driving up prices around the world. “The initial impact would be felt most acutely in Latin America and Europe, which account for the bulk of U.S. diesel exports,” said David Oxley of Capital Economics. “But the impact on global prices would be felt anywhere that imports diesel, including the U.S. West coast.”
S&P Global analysts said the lack of available refining capacity elsewhere in the world would likely force global diesel prices to rise precipitously to reduce demand. Curbs on U.S. diesel exports would likely raise jet-fuel and gasoline prices in the U.S. as well, they wrote in a note this week. That is because the inability to export would likely force refiners to cut diesel production. Refiners need to produce a minimum amount of diesel from each barrel of crude oil. Without that minimum, refiners would need to cut overall refinery output.
Diesel fuels much of the logistics of the global economy, powering trucking and cargo ships, and is the main fuel for agricultural equipment. Farmers across the U.S., Europe and Asia are being hit with price hikes just as the harvest season is under way. Diesel is also used for heating during winter in parts of the Northern Hemisphere, another source of demand.
Even if the U.S. decides not to ban exports, the squeeze on global supplies could get worse in the months to come. Refiners in the U.S. and Europe that have been running all out will likely need to ramp down for maintenance soon, analysts say. Damage inflicted by war on refineries in Russia and the Middle East might not be quickly repaired.
“If you end the crisis now in both Russia and the Middle East — which doesn’t look good — you don’t just snap your fingers and fix this destruction to export infrastructure, to refining infrastructure,” said James Noel-Beswick of Sparta Commodities in London, a firm that advises energy traders. “Things are going to get worse in terms of supply of diesel from here and that effect on the economy will only continue.”