In a statement sent to Rigzone recently, American Fuel & Petrochemical Manufacturers (AFPM) announced that more than 30 U.S. business, energy, and manufacturing groups from around the country have issued a letter to U.S. President Donald Trump “urging him to reject calls to ban or limit the export of diesel and other fuels from the United States”.
The letter – which accompanied the statement and was signed by groups including the AFPM, the American Exploration & Production Council (AEPC), the American Petroleum Institute (API), the Independent Petroleum Association of America (IPAA), the Texas Oil & Gas Association (TXOGA), the International Liquid Terminals Association (LTA), and the Liquid Energy Pipeline Association (LEPA) – thanked Trump for his “continuing commitment to an unsurpassed U.S. energy industry” but urged him “to reject calls to ban or otherwise limit the exports of diesel and other products that have made the U.S. energy industry so strong”.
“Export bans would lead to less fuel production, tighter supplies, and rising costs for American families, farmers, and truckers,” the letter warned.
“With 10 percent of global refining capacity offline, U.S. refiners are running at full capacity to supply the U.S. and to help stabilize global fuel markets,” it added.
“The U.S. produces more diesel than it consumes, allowing us to meet domestic demand and to supply our allies in Latin America and Europe. U.S. crude oil exports have likewise helped keep refineries running in other parts of the world as disruptions occurred through the Strait of Hormuz,” it continued.
“Exports allow U.S. refineries to balance their systems and maximize production. An export ban would require refineries to throttle utilization to reduce diesel production to equal domestic demand,” it noted.
“Falling utilization would result in less gasoline and jet fuel production and higher prices for those products as well. Meanwhile, areas of the U.S. that import fuel (primarily the Northeast) would face higher prices for all fuels that would now be in even shorter supply globally,” it said.
“This could not come at a worse time for consumers as home heating oil season is about to begin,” the letter went on to state.
Beyond price impacts, restricting exports would be a gift to the U.S.’s competitors, the letter noted.
“American energy dominance comes from being a reliable supplier to the world. If we pull back, other countries will step in, our influence will shrink, and our adversaries will gain ground. America’s energy exports are a source of economic and geopolitical strength,” it added.
“While we understand the urge for a silver bullet, there are no easy answers,” the letter conceded.
“We encourage you to continue the positive steps this administration has taken to tamp down energy prices. For instance, targeted Jones Act waivers have helped keep more than 50 million gallons of fuel in the U.S. and helped to back out imports,” it said.
“Longer term, continuing to work with global partners on bringing more fuel supply back to the market and reducing barriers to producing and moving energy is critical, and will help attract more investment in refining capacity,” it continued.
In a report sent to Rigzone on Thursday by the Fitch Solutions team, analysts at BMI, a unit of Fitch Solutions, said a proposed full or partial U.S. diesel export ban could provide limited short-term relief from record-high prices but warned that regional market fragmentation, logistical constraints, and incomplete pass-through to consumers would restrict the benefits.
“Fuel intensive sectors could gain, while refiners and energy producing states could lose,” the analysts warned in the report.
“Any near-term easing in inflation may be offset by lower refinery output and weaker investor confidence in the predictability of U.S. policy,” they added.
The analysts went on to project that the measure “may offer Republicans limited support ahead of the midterms and give the administration more scope to maintain pressure on Iran”. They pointed out, however, that it would raise global diesel prices, risk retaliatory export restrictions, and could prove difficult to unwind.
In a market update sent to Rigzone late Wednesday by the Rystad Energy team, Susan Bell, Rystad Senior Vice President of Commodity Markets – Oil, warned that “the proposed U.S. diesel export ban will not play out as the U.S. administration expects”.
“While it may temporarily lower domestic diesel prices, it will cause the price for all other refined products to soar as U.S. refineries cut run rates to balance their diesel production with the domestic demand,” Bell said.
“The U.S. currently exports over 1.5 million barrels per day of diesel and gasoil. Around 400,000 barrels per day is being imported by Europe, and another 800,000 barrels per day is being imported by South America. Even Africa has recently become an importer of diesel from the U.S., a situation that is outside the norm and is the result of supply losses from both Russia and the Middle East,” Bell continued.
James Noel-Beswick, Head of Commodities at Sparta Commodities, highlighted in distillate market commentary sent to Rigzone on Thursday that “all eyes are on a U.S. diesel export ban”.
“With the U.S. having been such a large supplier of diesel to the globe post Mid East crisis, any diesel export ban is of very high importance,” Noel-Beswick warned in the commentary.
“Nothing is formally decided … and White House advisers may argue that a ban would raise global prices rather than lower domestic ones,” he added.
“But with the midterms on 3 November, any decision is likely to come quickly,” he continued.
Rigzone has contacted the White House for comment on the AFPM statement and letter, Rystad’s market update, BMI’s report, and Sparta’s commentary. At the time of writing, the White House has not responded to Rigzone.
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