Is diesel too expensive to be exported? Trump seriously considered it, but Goldman Sachs calculated "trouble in nine weeks." (AFP file photo)
[Financial Channel/Comprehensive Report] After U.S. diesel prices soared to a record high of about $6.5 per gallon, the Trump administration is seriously considering a diesel export ban. U.S. President Trump publicly stated on September 27 that the government was "very seriously" studying restrictions on diesel exports and did not even rule out taking action.
Diesel costs US$6.5 per gallon, which is approximately NT$54.6 per liter. Domestic high-grade diesel costs NT$29.9 per liter. The retail price of diesel in the United States is 1.83 times that of China National Petroleum Corp. in Taiwan.
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Foreign media pointed out that this policy seems to be able to keep more diesel in the United States and lower domestic prices. However, Goldman Sachs’ latest model shows that the subsequent impact may be more complicated than imagined. It may have five consequences, and the “second” impact may be the most troublesome because gasoline is expected to become more expensive.
Goldman Sachs analysts Daan Struyven and others released research on September 26, assuming that the United States began to restrict diesel exports in early October and lasted for about 90 days, deducing the five major impacts after the policy was implemented. However, Goldman Sachs emphasized that this is a scenario worthy of high attention, but it is not the bank’s baseline forecast.
Impact 1: The price of diesel in the United States has fallen in the short term. The most direct effect of the ban is that diesel originally exported overseas remains in the United States. Goldman Sachs believes retail diesel prices will fall as inventory builds and wholesale prices come under pressure. The bank estimates that U.S. retail diesel prices could fall by about $0.25 per gallon for each week the export ban lasts, while there is still room in domestic storage tanks.
At the current price of about $6.50 per gallon, this is equivalent to a drop of nearly 4%. In other words, the initial export ban may indeed achieve the effect that the Trump administration wants to see most: making diesel cheaper.
Impact 2: After 9 to 10 weeks, gasoline may become more expensive. The problem, Goldman Sachs noted, is that the U.S. currently exports approximately 1.6 million barrels per day of net diesel fuel. If all of this diesel was suddenly left in the country, inventories would accumulate quickly. They estimate that, other conditions remaining unchanged, U.S. diesel storage tanks may approach their capacity limit in about 9 to 10 weeks.
However, once there is nowhere to put diesel, refineries may be forced to reduce their overall operating rate. However, when refineries reduce production, not only diesel will be reduced, but the supply of gasoline and aviation fuel will also decrease simultaneously. Goldman Sachs estimates that once diesel inventories approach the upper limit, U.S. retail gasoline prices may face upward pressure of about $0.30/gallon per week.
In other words, this policy may have the most counter-intuitive result: restricting diesel exports in order to keep diesel prices down may end up pushing up gasoline prices. And refiners typically don't wait until storage tanks are completely full before cutting production, so gasoline price pressure could emerge as early as Week 9.
Impact 3: Diesel prices rise in Europe and Latin America. Goldman Sachs pointed out that the United States is also an important diesel exporter in the world, and markets such as Europe, Brazil, and Mexico are highly dependent on U.S. diesel supplies. The bank estimates that if U.S. exports are suddenly interrupted, European ARA diesel wholesale prices may rise by about US$3/barrel per week, or nearly 2%. However, Europe still holds large strategic diesel reserves, which can release inventories and reduce price shocks in the short term.
Goldman Sachs estimates strategic reserves could offset about half of the gains, but the global diesel market is highly interconnected. Therefore, when Europe and Latin America cannot buy U.S. diesel, they will turn to India, the Middle East and Asia for supply, which is equivalent to shifting the pressure from the United States to other regions.
Impact 4: After the ban is lifted, U.S. diesel prices will rebound, and the low diesel prices caused by export restrictions will not last forever. Once the ban is lifted and U.S. diesel is exported overseas again, domestic prices will re-align with European, Latin American and Asian markets. By then, U.S. diesel prices may rebound while overseas diesel prices fall.
However, Goldman Sachs pointed out that the market may not be able to completely return to the state of "never implementing the ban". The reason is that during the ban, if U.S. refineries reduce their operating rates due to excessive inventory, the total global production of refined oil will also decrease. This means that after the ban is lifted, global inventories may still be lower than they would have been had the ban been implemented. In other words, the policy can be lifted, but the production lost during the ban cannot be made up immediately.
Impact 5: Goldman Sachs is bullish on European gasoline. Goldman Sachs pointed out that they are not bearish on the overall refined oil market. Instead, they reiterate their long trading view on European gasoline in 2027. One of the reasons is that diesel profits are currently much higher than gasoline, and global refiners will increase diesel production as much as possible to indirectly compress gasoline supply. This adjustment may be more pronounced if the United States restricts diesel exports and overseas diesel prices rise further.
In addition, the size of Europe's strategic gasoline reserves is significantly smaller than that of diesel, and the policy tools the government can use to stabilize prices are also more limited. Therefore, Goldman Sachs believes that this diesel crisis may not only be reflected in diesel prices in the end, but gasoline may become the next market that deserves more attention.
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