Diesel Export Ban’s Impacts Might Not Be Dire in US: Analysts
U.S. refiners could switch to lighter crudes that produce less diesel to avoid filling up storage tanks, while more U.S. diesel would be shipped domestically by sea if the Jones Act remains suspended, lessening the impact of a possible U.S. diesel export ban, analysts said.
Latin America and Europe that depend heavily on U.S. diesel would, however, aggressively compete for supplies elsewhere in a tight global market, which could boomerang inflation back into the U.S., they said.
U.S. Energy Secretary Chris Wright told Dow Jones Energy at an event hosted by The Wall Street Journal Wednesday that the White House would not outright ban diesel exports but rather implement restrictions. On Sunday, Trump said his administration is considering a diesel export ban “very seriously,” in line with his comments last week.
Most analysts have said attempts to block exports would lead to unintended consequences like higher fuel prices, reduced total refinery production and storage tanks filling up.
However, a U.S. ban or restrictions on diesel exports would not lead to a production surplus and U.S. refiners might not need to cut crude runs, said Philip Verleger, an oil market analyst who served as an energy advisor in the Ford and Carter administrations.
Verleger said in a Sunday note refiners can adjust how much diesel they produce at a specific facility by changing crude imports. Distillate yield can vary widely from Western Canadian Select at 52%, Arab Light at 53%, U.S. Bakken at 44% and U.S. Eagle Ford condensate at only 27%, he said.
In addition, it would be feasible to increase diesel shipments from the U.S. Gulf Coast to replace imports into the East Coast if the Jones Act waiver continued to allow the use of lower-fee foreign-flagged ships within U.S. waters, he said.
Also, cutting U.S. diesel exports by half in the fourth quarter would restore adequate supplies to the U.S. market, allowing stocks to refill in the Northeast, Verleger said.
Capital Economics said Monday that a U.S. diesel export ban would be particularly disruptive for Latin America as the region is reliant on U.S. supply and has large diesel-intensive sectors including road freight transport, agriculture and mining. Also, Central American countries and Chile are particularly vulnerable due to a lack of domestic refining capacity, it said.
In addition, the London-based research firm said any diesel supply disruptions could affect Mexico’s exports of goods to the U.S. that are mostly moved by trucks, even though it is plausible that Mexico would be exempted from the proposed U.S. diesel export, it said.
Analysts at French bank Société Générale said Monday U.S. diesel inventories are expected to recover even without government intervention despite already-thin global stocks that are vulnerable to further disruption.
The Energy Information Administration earlier in September forecast U.S. distillate inventories to rise to 109.11 million bbl by the fourth quarter, up from their Q3 average of 99.42 million bbl.
However, SocGen said Europe and Latin America, regions that rely heavily on U.S. diesel exports, would be forced to scramble for incremental barrels at a time when Indian exports are constrained and Russian refinery outages are limiting availability.
“The result could be higher global diesel prices, stronger margins for competing refiners and, ultimately, some of that inflation feeding back into the U.S. market,” SocGen said.
–Reporting by Frank Tang, frank.tang@dowjones.com; Editing by Michael Kelly, mkelly@opisnet.com
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