Diesel export ban: bad idea

[Winehole23]

Republicans are getting crushed by rising fuel costs and calling for a diesel export ban to relieve the pressure

That could backfire in a number of ways, causing worse pain down the road

...banning diesel exports is misguided. An export ban would further strain a segmented U.S. energy market, send prices higher and harm the people the policy is intended to help.

Policy actors whose priority is inherently short term—getting re-elected—will often fall to the temptation of implementing policy that is in their near-term interest but detrimental to the economy.

The diesel export ban is a good example.

The elimination of 1.67 million barrels per day of diesel exports would create a short-term domestic surplus, which would then have to be sold at a discount. Prices would decline, and policy actors would be able to claim that they are addressing a growing affordability crisis.

But such a ban would end up doing the opposite: raise prices and reduce supplies.

Because the U.S. exports its surplus production—total production is 5.3 million barrels per day, above 3.6 million barrels of daily domestic demand—energy firms would pull back on production until it reaches the new and lower equilibrium.

Revenues would decline for energy firms, and industry unemployment would most likely increase.

And shortage of supply would not only be for diesel but also most likely gasoline as the crude that was previously dedicated to the production of diesel would need to be sold, resulting in increased exports of raw crude at higher prices.

A bifurcated price structure domestically would ensue, creating further uncertainty across the economy.

Already, diesel prices on the Gulf Coast are lower than on the West Coast while prices on the East Coast are closer to internationally set levels.

Even if the Jones Act, which requires all goods transported by water between U.S. ports to be on American-owned and staffed ships, had its temporary exemption, which expires Nov. 15, made permanent, it would not eliminate the bifurcated price structure that would ensue.

Increasing complexity within an antiquated energy infrastructure is in no one’s economic or policy interest.

Second, such a ban would result in the elimination of the 1.67 million barrels in U.S. diesel exports, reducing the total global supply by just over 18%.

That would send global prices higher, creating conditions in which those costs would be passed along to the production of other goods, which the U.S. imports.

A negative feedback loop would then ensue, worsening an already deteriorating international pricing environment that would most likely prompt global central banks to raise policy rates more than they intend.

https://realeconomy.rsmus.com/the-fo...el-export-ban/

[Winehole23]

cutting off the world from the US diesel surplus (~18% of global supply) would be touching a very hot geopolitical stove

the world already hates us for one US policy-induced energy shock, this would be another

Adjustment to global regime change in inflation and interest rates is straining the global economic outlook. As central banks prepare to raise rates in part because of the sustained energy shock, this is not the time for an ill-advised diesel export ban.


It would result in another supply shock that is entirely policy induced, further fragmenting the domestic energy markets and sending prices higher while curtailing roughly 18% of global diesel exports.

[Winehole23]

a diesel export could hit New England heating oil nontrivially, this winter

Banning diesel exports would *temporarily* provide some price relief for most of the country, but not for New England. Because pipelines don't run that far north, PADD 1A has to import large amounts of diesel, which means it's competing with a (structurally short diesel) Europe for barrels

Because the U.S. exports so much diesel, banning those exports would shrink global supply, raising global prices and therefore the imported price that PADD 1A pays. This also couldn't be happening at a worse time; diesel inventories in PADD 1A are lower than anypoint in the past 10 years.

This matters much more for PADD 1A than anywhere else in the country because in New England, diesel isn't just for industrial uses; *half* of homes in Maine use diesel (No 2. fuel oil) for heating. Over a million people in MA use it for home heating.

What's so worrying is that in the Biden Admin, when Russia invaded Ukraine in 2022 and the global diesel market tightened, we were concerned that PADD 1A might actually run out of physical diesel and have to engage in rationing. By all accounts, the situation is even worse now.

Banning diesel exports would, in effect, be a small subsidy to farmers and other industrial users of diesel across the country at the expense of New England residents, who would see heating costs skyrocket if not run into acute physical shortages

https://bsky.app/profile/weakinstrum.../3mw4u4vkji22x

[Winehole23]

drives core inflation