Diesel Export Ban? Why It Could Backfire Fast

Diesel prices are soaring, with JPMorgan analysts stating that a resolution remains unclear. The discussion around a potential U.S. ban on diesel exports has gained political momentum, but analysts suggest this move may have unintended consequences. According to John Kingston, a FreightWaves energy reporter, a ban could result in uneven outcomes across different regions, rather than providing widespread price relief.

New England, which lacks nearby refineries and heavily relies on European imports, would face increased costs if diesel exports were restricted. The Colonial Pipeline, which transports fuel from the Gulf Coast to New York Harbor, is also likely operating at full capacity and may not be able to absorb additional volumes. Similarly, the West Coast would struggle to receive Gulf Coast diesel without the lengthy and costly route through the Panama Canal, as tanker rates are currently "off the charts."

Moreover, a ban would remove an incentive for refiners to maintain high output levels, as margins for diesel and gasoline are currently exceptionally profitable. Refineries are already set to reduce production due to seasonal maintenance, further exacerbating the supply issue. JP Morgan's commodity research team recently acknowledged that they see no resolution in sight for elevated energy prices, expressing that previous red lines, such as $100 Brent crude, a 5-handle on the 10-year Treasury yield, and $4 gasoline, have not prompted policy changes.