Trump asks Xi to boost diesel exports; China unlikely to repeat 2022 intervention

S&P projects 12% refinery run cut if US bans diesel exports

President Donald Trump asked Chinese leader Xi Jinping at a Washington summit to boost Chinese exports of refined oil products as U.S. diesel prices hit all-time highs ahead of the November midterm elections, The Wall Street Journal reported Wednesday. China is unlikely to repeat its 2022 diesel intervention that helped cool global fuel markets after Russia’s invasion of Ukraine, according to “Heard on the Street” columnist Carol Ryan, because Beijing now prioritizes domestic fuel security over maximizing refinery profits and the global crude supply is more volatile than it was four years ago.

Whether Beijing will release more diesel onto world markets has become central to whether Trump follows through on his threat to ban U.S. diesel exports — a move S&P Global Energy analysis says would produce unintended consequences for American drivers, including higher gasoline prices, and one U.S. oil industry executives oppose because they would lose billions of dollars in international business.

The Wall Street Journal reports that China holds the world’s only significant excess refining capacity. U.S. refineries are running at about 97% utilization, while Chinese refineries are operating at roughly 75% of maximum output, according to Vortexa data cited by the Journal. Beijing banned refined fuel exports early in the war and told refiners they could resume shipping in July once it became clear there was no domestic fuel shortage.

Chinese diesel exports have already risen. Diesel shipments from China reached approximately 500,000 barrels per day in September, up from an average of 166,000 barrels per day from April through July, according to Vortexa. Chinese diesel export margins — the profit refiners make from selling abroad — reached $100.58 per barrel in September, up from $21.40 in January, according to Tom Reed, head of oil market analysis at Argus Media.

Despite the financial incentive, oil analysts do not expect an export boom comparable to the one seen in late 2022. Back then, diesel prices rose after Russia’s invasion of Ukraine. In September 2022, Beijing issued extra export quotas to refineries. By November 2022, China was exporting approximately 680,000 barrels of diesel per day, which helped cool global prices, according to the Journal.

Several constraints complicate a repeat performance. Issuing additional export quotas now could send Chinese buyers back into the crude market and push up oil prices, Ryan reported. A shortage of oil tankers is also raising the all-in expense of shipping oil from the Middle East to China. Chinese refineries have used less of their existing export quotas than is normal for this time of year, since they were barred from exporting fuel early in the war, meaning they could export roughly 100,000 additional barrels of diesel per day in the fourth quarter without any policy shift, based on Vortexa estimates.

The International Energy Agency reported that global diesel exports reached 4.6 million barrels per day in August, down from 5.1 million barrels per day in the same month a year earlier. Additional Chinese supply would help, but it would probably not be enough to remove the threat of a U.S. export ban, Ryan wrote.

Trump’s alternative — banning U.S. diesel exports — is, according to the Journal, deeply unpopular with U.S. oil industry executives, who would lose billions of dollars of business if domestic refineries were cut off from international markets. U.S. diesel exports generated $25 billion in revenue during the 90-day period between June 13 and September 11, according to S&P Global Energy estimates cited by the Journal. Pulling American diesel from the global market would, according to the Journal, be a disaster for customers in Latin America and Europe who rely on U.S. supplies.

Such a ban could also produce unintended consequences for American consumers. Cutting off export markets would leave U.S. refiners with a substantial diesel glut, likely causing refinery margins to collapse and leading to a 12% cut in refinery runs, according to S&P Global Energy analysis cited by Ryan. The resulting tightening of supply for other transport fuels, including gasoline, would push pump prices higher for drivers.

China already helped stave off a worse oil-price shock earlier this year when it cut crude imports, the Journal reported. Ryan, who is based in London and covers European energy companies for the Journal’s Heard on the Street column, joined the paper from Reuters Breakingviews. She concluded: “Don’t bet on it fixing the diesel crunch too.”