The market is discussing a potential U.S. diesel export ban to curb soaring domestic refined oil prices, but analysts warn that this policy could ultimately drive up prices across all fuel categories . Once export restrictions are implemented, domestic storage tanks would quickly fill up, forcing refineries to reduce operating rates, leading to a diesel surplus in the U.S. while other parts of the world face diesel shortages. Last week, U.S. retail diesel prices broke through $6.50 per gallon, setting a new record. Amid global diesel supply shortages, U.S. diesel exports continue to rise, with Europe being the main import region. To alleviate domestic fuel cost pressures, U.S. lawmakers proposed a temporary export ban, and President Trump has signaled his support for the policy. However, energy officials and industry research institutions are not optimistic about this policy, believing it will lead to a series of unpredictable negative consequences.

The policy has hidden side effects; export restrictions will reduce refinery operating rates.

U.S. Energy Secretary Chris Wright warned of the policy last week, arguing that it would have unintended ripple effects. He stated, "A blanket ban on diesel exports is definitely not going to work. If refineries can't export diesel, domestic storage facilities will quickly run out of space, forcing companies to cut U.S. refining capacity, which will put upward pressure on gasoline and jet fuel prices." Wood Mackenzie, in a research report released last Thursday (September 24), agreed with this assessment. The report stated that the export ban would quickly deplete storage capacity, forcing refineries to drastically reduce processing loads, ultimately increasing the quantity and cost of gasoline imports, effectively shifting price pressure from diesel to gasoline. The consulting firm estimated that if a 90-day diesel export ban were implemented, approximately 700,000 barrels of diesel and gas oil would be transferred to storage tanks, exhausting all available storage space in just over a month. Refineries would then need to cut crude oil processing by approximately 2 million barrels per day, with gasoline production decreasing accordingly.

The global refining capacity structure limits the effectiveness of policies; only major Asian countries possess surplus refining capacity.

On the surface, increasing crude oil exports might lower crude oil prices, but refined product prices wouldn't follow suit. The biggest obstacle to this plan is the limited overseas refining capacity, with a large amount of surplus capacity concentrated in major Asian countries. The shortage of refining facilities in Europe is particularly pronounced, which is the fundamental reason for Europe's heavy reliance on fuel imports from the United States. Alan Gelder, senior vice president of refining, chemicals, and oil commodities research at Wood Mackenzie, stated that the US diesel export ban is ironic, as this policy is likely to raise overall fuel costs for American consumers. He explained, "Cutting crude oil processing to absorb excess diesel will shift cost pressures from diesel to gasoline. A policy originally intended to lower diesel retail prices will ultimately push up gasoline prices." He added that currently only major Asian countries possess substantial spare refining capacity capable of filling the gap caused by reduced US refinery production, but these countries may not choose to absorb this supply shortfall.

Market advance pricing policy risks, increased volatility in crude oil price spreads and shipping costs.

Discussions surrounding the diesel export ban have already begun to put downward pressure on US crude oil prices. Even though President Trump vetoed Iran's peace proposal at the UN General Assembly in New York, both major crude oil benchmarks rose simultaneously, with West Texas Intermediate (WTI) crude maintaining a $12 discount to Brent crude. Normally, this discount would stimulate market purchases of US crude, but insufficient refining capacity in key overseas regions has disrupted this traditional market logic. Coupled with the Middle East situation pushing up shipping and insurance costs, the traditional link between crude oil demand and prices has been broken. The shortage of tankers has driven up freight rates, and the war risk premium in the Middle East has increased insurance expenditures. Transoceanic shipping costs have risen sharply; the one-way freight rate for very large crude carriers (VLCCs) from the US Gulf Coast to Asia has reached approximately $50 million, compared to only $16 million before the outbreak of the US-Iran conflict at the end of February. Insufficient overseas refining capacity, coupled with high shipping and insurance costs, has completely altered the pricing logic for crude oil demand, exacerbating the current energy market supply shortage.

A review of supply and demand fundamentals suggests that export bans do more harm than good.

JPMorgan Chase data shows that U.S. refineries produce 5.1 million barrels of diesel per day, export 1.2 million barrels per day, and consume 3.6 million barrels per day domestically. Theoretically, existing capacity can simultaneously meet both domestic consumption and export demands. However, both crude oil and diesel markets are globalized, and global price fluctuations inevitably impact the U.S. domestic market. Even a short-term 90-day diesel export ban would have negative consequences outweighing the policy's benefits, ultimately harming the American consumers the policy was intended to protect.

Conclusion

In summary, the initial intention of the proposed US diesel export ban was to lower domestic diesel retail prices. However, industry officials and institutions such as Wood Mackenzie have warned of significant side effects. Domestic storage tank saturation will force refineries to reduce operating rates, leading to a decrease in gasoline production and shifting the cost pressure from diesel to gasoline. The global refining capacity distribution is unbalanced, with only major Asian countries possessing surplus refining capacity, making it difficult for external sources to compensate for the production cuts by US refineries. Meanwhile, high shipping and insurance costs resulting from the Middle East conflict further amplify energy market volatility. Short-term policy discussions have already disrupted US crude oil pricing, with WTI maintaining a significant discount to Brent crude. Continued monitoring of the progress of related policy discussions in the US Congress, as well as changes in global refinery operating rates and tanker freight rates, is necessary to assess the future trend of refined oil product prices.