Analysis-Talk of US export ban on diesel deepens US crude futures’ discount to global benchmark

The United States is facing talk of a potential ban on diesel exports, which has increased the gap between domestic crude oil futures and the global Brent benchmark. This discount in US crude futures indicates expectations that refiners will produce less crude oil if diesel production gets stuck domestically. The ban may offer short-term relief for high domestic diesel prices, which have reached a record $6.528 a gallon.

However, it could also lead to higher gasoline prices in the long term and a potential increase in diesel prices.

If a ban on diesel exports were to occur, US crude futures could see a significant discount relative to the Brent benchmark. On Thursday, West Texas Intermediate (WTI) crude futures traded as much as $12.02 a barrel below Brent futures, their largest discount since May 6. Analysts suggest that US refiners might reduce their crude runs by up to 12% if a ban is imposed, with key storage hubs potentially reaching maximum capacity within a month.

The US is the world's largest diesel exporter, with net exports of about 1.2 million barrels per day, while production stands at 5.1 million barrels per day.

The US is the world's largest exporter of diesel, with exports accounting for about 1.2 million barrels daily. These exports have partially offset the shortfall caused by the closure of the Strait of Hormuz and reduced supplies from Russia, which has imposed its own export bans to address shortages resulting from Ukrainian drone attacks on refineries.

A ban on diesel exports would redirect a 700,000 bpd oversupply of diesel and gas oil into storage, potentially filling Gulf Coast inventories to capacity in less than a month. This would force US refiners to cut crude runs by more than 2 million barrels per day, equivalent to a 12% reduction in current US refinery crude runs.