Historic disruption to global refining output has taken millions of barrels per day of diesel off the market. And the impact is showing up in prices all over the world — including here in the U.S.
American refineries have been running at record rates for months to help supply markets and put downward pressure on prices. Many are even running above 100% of their nameplate capacities. But even the world’s largest producing and most complex refining system can’t fully replace this loss of global supply.
Some are now suggesting the U.S. should try to lower prices by banning or restricting diesel exports. But this is not the quick fix proponents hope. Banning U.S. diesel exports could have severe effects on markets, force U.S. refineries to produce less fuel of all types, and further raise prices here in the United States.
Diesel is traded globally, so prices in the U.S. are shaped by the global balance of supply and demand. A Gulf Coast barrel may never physically go to New England, but adding supply to that market puts downward pressure on the prices U.S. consumers pay.
Of the 8 million barrels of diesel traded globally by sea each day, the U.S. supplies about 1.5 million of them — about 20%. An export ban would remove the single largest source of global diesel from the market, and the consequences could be catastrophic.
Removing that much fuel from the global market would exacerbate the very global refining crisis that is increasing prices here in the U.S. And the impacts could extend far beyond pain at the pump, to dire consequences for international supply chains, agriculture, shipping, manufacturing and the entire global economy.
The United States is part of that global economy, and that kind of economic destruction would be felt here at home.
The U.S. isn’t one unified fuel market. Roughly 54% of the nation’s refining capacity is concentrated along the Gulf Coast, where refineries produce more fuel than consumers in that region use. The West Coast produces enough diesel to meet its own demand but still imports gasoline and jet fuel. The East Coast, by contrast, lacks sufficient refining capacity and relies in part on diesel supplied from elsewhere — including imports, which account for about 10% of its diesel supply.
Exports and imports are critical to balancing this otherwise unbalanced system. Exports provide a market for surplus Gulf Coast diesel, while imports provide another source of supply for regions that cannot meet all of their demand locally.
Refineries cannot make only the fuel that is most needed at a given moment. Processing crude oil produces certain proportions of gasoline, diesel, jet fuel and other products, and refiners are limited in their ability to adjust those proportions.
If diesel exports were blocked, surplus fuel could start filling storage on the Gulf Coast, where refineries produce more diesel than the region consumes. As storage tanks are filled, the only way to avoid producing even more surplus diesel would be to process less crude oil.
But cutting refinery runs would not reduce diesel production alone. It would also mean producing less gasoline, jet fuel and other products at a time when global fuel supplies are already tight.
Restricting exports is not a solution to high prices. Removing U.S. diesel from the market could instead result in reduced refinery runs, global economic damage and even higher U.S. prices.
Keeping trade flowing gives U.S. refineries the flexibility to keep producing and helps ensure more diesel is available in a tight global market.
