Gas prices could soar if the U.S. bans diesel exports, economists say

A move by the U.S. to temporarily halt diesel exports amid record-high prices would initially lower costs, but a prolonged ban could drive up domestic gasoline prices, according to Goldman Sachs.

President Trump on Sunday told reporters his administration is "very seriously" considering a ban on diesel exports. Calls to restrict exports of U.S.-refined diesel have picked up in recent weeks, mostly from Republican lawmakers, as a lever they believe will help lower prices. Diesel hit a record $6.53 a gallon on Sept. 22, and has only eased slightly since then, slipping to $6.45 a gallon on Monday, according to AAA data. 

Supporters of an export ban note that U.S. energy companies refine more diesel than Americans can consume, resulting in net exports of about 1.5 million barrels a day, according to S&P Global Energy. By halting those exports, the thinking goes, domestic diesel prices would drop due to a flood of fresh supply, lowering costs for farmers, commercial trucking companies and thousands of other businesses that rely on the fuel. 

How much would a diesel export ban lower prices?

Goldman Sachs estimated that a diesel export ban could cut prices by about 25 cents a gallon while refiners have storage space for their excess diesel production. However, once diesel storage reached capacity, each additional week a ban was in place could cause gas prices to jump by 30 cents per gallon, according to the investment bank.

"The longer a diesel export ban lasts, the more disruptive it would likely be by putting upward pressure on gasoline prices because diesel, gasoline and jet fuel are largely produced together," Goldman Sachs analysts said in the report. "Therefore, downward pressure on diesel production can mean downward pressure on gasoline production, i.e. upward price pressure on gasoline."

The White House didn't immediately respond to a request for comment.

Although diesel prices would likely initially drop if an export ban were to be introduced, U.S. energy companies would respond by cutting their refining output, according to industry experts. Gasoline is refined alongside diesel, so a drop in production would also reduce gas supplies, driving up prices for U.S. consumers. 

American Fuel & Petrochemical Manufacturers, a trade group for energy producers, warned Friday that blocking refiners from exporting excess diesel supplies would cause them "to cut fuel production overall, including gasoline, putting upward pressure on prices and increasing America's reliance on imported fuel."

Shifting the cost burden to gas

Wood Mackenzie, an energy consulting company, also predicts that Americans could face sharply higher gas prices if the Trump administration implemented a full diesel export ban.

"The irony of a U.S. diesel export ban is that it would likely increase costs for American consumers," Alan Gelder, an analyst at Wood Mackenzie, said in a statement. "Cutting crude runs to manage the oversupply would shift the cost burden from diesel to gasoline, meaning a policy designed to bring relief at the diesel pump could end up driving prices higher at the gasoline pump."

If an export ban extended longer than 30 days, cracks would appear in the economics of refining diesel and gas, according to JPMorgan analysts.

"Refiners can't indefinitely produce excess supply. And since a refinery can't simply stop making diesel while continuing to produce the same amount of gasoline, crude runs eventually would have to fall," JPMorgan analysts wrote in a Sept. 24 report. "At this point, some of the initial price relief would begin to reverse — the opposite of what policymakers want."