Lawmakers are weighing emergency relief measures, including a federal gas-tax holiday or a ban on diesel exports. As harvest gets underway, the current diesel price is at an all-time record average of $6.51 per gallon. Producers are paying over $2.50 per gallon more this year versus last year.
According to the U.S. Energy Information Administration, the U.S. exports 23% to 30% (about 1 out of every 4 barrels) of the diesel it produces. The EIA also shares that between September and October, U.S. consumption of distillate fuel oil increases by 4% primarily because of fall harvest use.
What’s driving the price surge?
Despite reports crude oil is moving through the Strait of Hormuz, refining capacity remains at historic lows. The surge in price of diesel is also attributed to:
- Saudi Arabia’s East-West pipeline disruptions halting temporary European Union exports through September and October.
- Damage to Russian refineries tightening global distillate supplies.
“It’s the exports of diesel and gas right now responsible for our high prices,” says Arlan Suderman, Chief Commodities Economist, StoneX.
Congressional Stalemate vs. Executive Action
As the midterm election approaches, experts believe legislative action facing partisan blockage is not likely to cross the finish line. Senate Majority Leader John Thune and Sen. Chuck Grassley (R-IA) have expressed concerns about restricting or banning diesel exports.
Suderman speculates President Trump could attempt an Executive Order, despite legal ambiguities.
“I don’t know that he has the avenue to do that, but that doesn’t mean he wouldn’t try to block exports,” he says.
Short-Term Relief vs. Long-Term Backfire
A potential ban on diesel exports could have come with some long-term downside, but some short term upside:
1. The Short-Term Upside: Fast Price Relief
Proponents and some market analysts argue that restricting exports could temporarily bottle up domestic refined products in the U.S, driving immediate spot prices lower and offering a brief window of margin relief for farmers and truckers during peak harvest.
“If that occurs, yes, our prices here will take a nose dive or a healthy correction,” says Sue Martin, president of Ag and Investment Services.
2. The Long-Term Downside: Supply Chain Disruptions
Conversely, Interior Secretary Doug Burgum and other administration officials say an export ban is unlikely to lower domestic energy prices. Opponents argue that a ban could:
- Reduce overall refinery production.
- Disrupt domestic supply chains due to limited transport infrastructure.
- Harm allies (such as Mexico, Chile, UK, and Netherlands) who rely on U.S. fuel.
Luke Beckman of Central Valley Ag says everything he has read regarding a potential diesel plan would be a bad idea. He explains that if exports are reduced or limited, it will put the refiners in a tough position once they max out storage capacity.
“I think an export ban on diesel, while initially sounds like the right idea to make our prices cheaper, will ultimately cause a lot of problems,” Beckman says.
The Bottom Line for Producers
If a federal policy intervention were to occur and cause fuel prices to drop rapidly, market experts recommend producers act quickly rather than expect low prices to last.
“If that happens, I recommend getting your needs booked out as far as you can because the break in those prices isn’t going to stay,” Martin says.
