The ban on diesel exports may have side effects! Damo warning: US refiners are forced to cut production or push up gasoline prices

The Zhitong Finance App learned that according to media sources, the US government is preparing a 90-day ban on diesel exports. The legal procedures for this ban are still unclear, but US President Trump is inclined to launch it before the end of this week. In response, Wall Street bank Morgan Stanley warned that the Trump administration's restrictions on diesel exports would have a “significant impact” and that American drivers should prepare for rising gasoline prices.

Morgan Stanley analyst Martijn Rats and others said in a report on September 23 that the ban on diesel exports will cause US domestic oil storage tanks to fill up for several weeks, forcing US refiners to reduce production activities, which in turn will cause gasoline production to drop and prices to rise. The report stated: “A ban on diesel exports may have a counterintuitive effect, that is, if US refiners reduce operating rates, it will cause gasoline prices to rise.”

Analysts at Morgan Stanley said that the bank does not currently use the Trump administration's ban on diesel exports as a basic scenario, but if the ban is implemented, US refiners will have to cut the average daily refining volume by about 2 million barrels. They added that even if refiners adjust output and maximize gasoline production at lower operating rates, the supply of gasoline in the US will still be reduced by about 650,000 b/d.

At the same time, US diesel prices will fall, while overseas diesel costs will rise, with Europe “being the most affected.” Analysts added that as long as the US is still in the discussion stage whether to implement the ban, the market should be prepared for further fluctuations.

As the midterm elections approach, Trump imposed an export ban to calm diesel prices or

Earlier this week, Trump said he was encouraging his staff to support a ban on US diesel exports. Trump made this statement during a meeting with Ukrainian President Zelensky during the UN General Assembly. He previously urged Zelensky to stop attacks on Russian refineries — attacks that have prompted Russia to restrict its own diesel exports. The ban on Russian diesel exports will last at least until September 30, as the Russian government tries to ensure domestic market supply during the Ukrainian attack. Before Ukraine launched an unprecedented round of attacks, Russia was a major diesel exporter, accounting for about 10% of the world's total supply.

Meanwhile, the continued pressure on supply due to the conflict in the Middle East also contributed to a sharp rise in diesel prices during the year. In the Middle East, the ongoing confrontation between the US and Iran has limited energy exports through the Strait of Hormuz — the waterway was responsible for one-fifth of the world's oil and liquefied natural gas shipments during peacetime, while also transporting large quantities of petroleum products. The recent escalation of clashes between Saudi Arabia and Yemen's Houthis has also disrupted Red Sea shipping. In addition, oil refineries in the Middle East have also been attacked, which may further increase the extent of restrictions on the supply of refined oil products in the Persian Gulf region.

Diesel fuels trucks, trains, ships, and heavy equipment, and also drives agricultural machinery, power generation, and home heating. And rising demand for heating and agriculture in the fall could further amplify the impact. As consumers are more sensitive to retail gasoline prices, the rise in diesel is often overlooked, but its impact is transmitted through layers of food, transportation, construction, and commodity prices.

Bob McNally, president of Rapidan Energy, said that diesel is “a more hidden, more expensive, and more influential fuel” and is the true lifeblood of the economy. GasBuddy analyst Patrick De Haan warned that “every truck, every delivery, every package, and every purchase is getting more expensive.” Patrick De Haan said that Americans now spend about $700 million more on gasoline and diesel every day than a year ago. Record diesel prices will affect every shipment, every shipment, and may reignite inflation throughout the supply chain. He also said that diesel prices are at current levels and will become the “silent killer” of the economy.

The Trump administration's proposed ban on diesel exports aims to lower US diesel prices before the midterm elections to ease voters' concerns about rising living costs. As the midterm elections approach, record diesel prices may weaken support for Trump's Republican Party in agricultural states such as Iowa, and may also affect states that rely on household heating oil, such as Maine.

According to data from the American Automobile Association (AAA), the average price of diesel in the US climbed to $6.53 per gallon this Monday, a record high. By comparison, the average price of diesel in the US at the end of February was $3.76 per gallon.

Although the US is one of the world's largest refiners, has a huge network of refineries, and can process millions of barrels of crude oil every day, the price of refined oil products is still high. American refiners are operating almost at full speed. As of July, the operating rate of US refineries was close to or above 95% for nearly two months, which raised the risk of equipment failure and maintenance delays, and could exacerbate an already tight supply situation.

US Treasury Secretary Bessent said earlier that the US “is reviewing whether it is feasible in terms of overall refining capacity, and whether a complete or partial ban will work.” However, US Secretary of Energy Wright and Secretary of the Interior Bergum both opposed the export ban. Among them, Wright emphasized that the US is seeking to increase supply rather than cut foreign sales. Wright said last week that the ban will cause an oversupply of diesel along the US Gulf Coast and force US refiners to reduce operating rates, which in turn will lead to a decline in gasoline production.

However, according to people familiar with the matter, Wright has told oil industry leaders to prepare for possible restrictions on diesel exports. In public, Wright stressed that in a situation where the government has not actually banned diesel exports, refiners may voluntarily restrict exports.

Diesel export ban threatens to eat away at gasoline supply

Like analysts at Morgan Stanley, many analysts also believe that the ban on diesel exports may be counterproductive because US domestic refiners may reduce crude oil processing due to loss of overseas customers, which means they will also reduce production of gasoline and aviation fuel, thereby boosting the price of such refined oil products. Another complicating factor is that some parts of the US (such as the Northeast) import diesel. If the US imposes a ban on diesel exports, global diesel prices will rise, and these regions will eventually pay higher prices.

U.S. refineries are concentrated along the Gulf Coast, and pipelines leading to population centers on the east coast are operating at or near full capacity. The market lacks enough tankers to transport fuel to the West Coast, which means West Coast fuel prices are likely to rise despite export restrictions.

Geoff Moody, senior vice president of government relations and policy at the American Fuel and Petrochemical Manufacturers Association, an industry organization representing refiners, said: “A ban on diesel exports would be counterproductive. This means lower US fuel production, tighter supply, lower energy security, and higher prices for Americans.” “There is no benefit [from the export ban], which is why both governments have repeatedly chosen to oppose fuel export bans,” he added.

The US imposed a 40-year ban on crude oil exports after the 1975 Arab oil embargo — a time when the US refining industry relied heavily on foreign crude oil. The US Congress lifted the ban in 2015. Since lifting the export ban under a state of emergency is more difficult politically than implementing it, the oil industry does not want to see the ban reintroduced.

Furthermore, it is unclear whether a solid legal basis can be found to implement the ban. Analysts say the International Emergency Economic Powers Act allows the US president to restrict exports in the face of a state of national emergency involving “unusual and special threats,” but any restrictions may immediately be brought to court. However, the consulting agency Rapidan Energy believes that the president's power to ban exports is “unquestionable.”