The diesel dilemma faces the Trump administration amid record high prices and warnings of an export ban

The administration of US President Donald Trump is facing a growing dilemma in the diesel market. While rising prices are prompting a search for ways to increase supply within the United States, Energy Secretary Chris Wright, refineries and industrial groups are warning that banning fuel exports may have the opposite effect, by filling storage tanks and reducing refinery operating rates, which in turn puts pressure on gasoline and jet fuel supplies.

The average price of diesel in the United States exceeded $6.50 per gallon, reaching record levels, amid widespread disruptions in global fuel supplies due to the war in the Middle East and the war in Ukraine. The price reached $6.52 on Wednesday, an increase of 76 percent from its level a year ago, according to AAA data.

This rise places the Trump administration with limited options to contain the cost of fuel on which the transportation, agricultural and industrial sectors depend, at a time when calls have begun within the Republican Party to restrict US diesel exports with the aim of increasing the quantities available in the local market.

But Wright said Wednesday that banning diesel exports “will not work,” warning that preventing American refineries from exporting excess fuel could lead to storage facilities becoming full, then forcing refineries to reduce operating rates. This may raise the prices of gasoline and jet fuel instead of reducing energy costs.

Wright said that the administration is working with the refining sector to increase diesel supplies in the United States through a “voluntary and cooperative” approach instead of using tools that may lead to reducing refinery production, but he did not reveal the details of the plan, stressing that final decisions have not been made yet.

Following a report that the administration was preparing to ban diesel exports for 90 days, the White House denied on Wednesday that Washington was preparing for such a ban. Wright later said that a comprehensive ban on exports was not being considered, and that the discussion centered on how best to increase the flow of diesel into the United States, while at the same time maintaining flows of gasoline and jet fuel.

A paradox in the fuel market

The problem is that the United States is not only a large consumer of diesel, but also the world's largest exporter, while its refineries are already operating at high levels of production capacity. Energy Information Administration data showed that US refineries operated at about 94 percent of their capacity last week, while diesel inventories amounted to 96.97 million barrels, about 15 percent less than the five-year average for the same season.

Energy analysts warn that stopping exports does not necessarily mean that exported quantities will be transferred directly to the local market. Refineries simultaneously produce diesel, gasoline, jet fuel and other products, and if storage facilities become full of diesel that can no longer be exported, they may have to reduce their overall production.

TAC Energy analysts said that losing the ability to export will push a number of refineries to reduce operating rates. This reduces the production of gasoline and other products as well, and makes the measure “counterproductive” to the goal of reducing fuel prices.

These concerns are supported by American refiners and business groups. 36 industry and trade groups, including the American Petroleum Institute, the Fuel and Petrochemical Manufacturers of America, the Business Roundtable, and the US Chamber of Commerce, called on Trump to reject any ban on diesel exports.

The groups said, in a letter to the White House, that American refineries are operating near their maximum capacity and are producing more diesel than the domestic market consumes, warning that banning exports will lead to a reduction in fuel production, tightening supplies, and raising costs for families, farmers, and transportation companies.

A crisis that extends beyond the American market

The jump in US diesel prices is not linked to a single local factor. Disruptions in supplies of oil and refined products in the Middle East have tightened the global market, while attacks on Russian refineries have damaged significant production capacity.

Reuters data indicates that diesel exports from the Middle East fell to about 800,000 barrels per day between March and August, half their levels in the same period of the previous year, while refineries around the world face operational pressures that limit their ability to increase production.

In the United States, refinery runs rose to an eight-year high in late August, but inventories remained well below typical seasonal levels; This reflects the tight supply margin despite the high production rates.

Russia, which is the second largest exporter of diesel after the United States, imposed restrictions on fuel exports after the production of its refineries was damaged by the Ukrainian attacks. This contributed to increasing competition for supplies available in global markets.

This means that any reduction in US diesel exports may not have a limited impact within the United States. It could redistribute limited supplies in a global market that already suffers from a relative shortage of refining capacity.

Increasing political pressure

With diesel reaching record levels, pressure increased on the US administration to take rapid action, especially with the agricultural and shipping sectors relying heavily on this fuel.

The two senators from Maine, Republican Susan Collins and Independent Angus King, called on Trump to release stocks of heating oil reserves in the northeastern United States, to help mitigate the impact of high prices on families.

The reserve includes one million barrels of diesel distributed over four sites between the states of Maine and New Jersey, and is sufficient for about ten days of heating needs in the region. The reserve has not been used since 2012, when part of it was released to help emergency response teams after Hurricane Sandy.

The mounting pressure comes as the midterm congressional elections approach in November, after the high cost of fuel has become a prominent economic issue for farmers, transport companies and consumers. A number of Republicans in states witnessing electoral competition called for restricting diesel exports, while others within the administration and the oil sector expressed reservations about the feasibility of this step.

Reducing price or maintaining production?

The controversy over diesel exports reveals a broader dilemma in managing US fuel markets: increasing domestic supply does not necessarily mean lowering prices if it comes by disrupting the production and export mechanism on which refineries depend.

The United States consumes about 4.1 million barrels of diesel per day, while it exported about 1.5 million barrels per day on average during the current year, according to S&P Global Energy data. Exports allow refineries to discharge production that exceeds domestic demand, while closing this port may lead to the accumulation of stocks and the refineries being forced to reduce production.

On the other hand, the continuation of prices at record levels puts pressure on sectors that depend directly on diesel, from trucks and agricultural equipment to generators and marine transport. This makes the cost of fuel gradually move to the prices of goods and services.

Thus, the battle is not only about diesel exports, but about how to manage a refining market operating near its maximum capacity, at a time when war and global supply disruptions have depleted safety margins in stocks. With quick options to increase supply diminishing, the trade-off appears more complex between trying to reduce the price in the local market and maintaining refinery production and the flow of fuel to global markets.