American oil executives thought they had won their fight to persuade Washington to keep diesel shipments flowing. Then, President Trump spoke up.
On the sidelines of the United Nations General Assembly in New York on Tuesday, he said he is considering restricting diesel exports. Prices have climbed to record levels ahead of the midterm elections in November, threatening some of the president's Republican allies in Congress. Diesel is used by commercial truckers, farmers and others to move everything from groceries to electronic gadgets to the market.
Trump's support for the idea blindsided industry officials. Oil executives and lobbyists rushed to register their opposition to any restrictions, with several calling the president's lieutenants and congressional Republicans, according to people familiar with the matter. But now, they said, it seems inevitable the U.S. will move forward with some measure limiting their fuel shipments.
Even if the measure is temporary, U.S. oil companies stand to lose billions of dollars in revenue if they aren't allowed to ship diesel abroad.
"I think we've invested too much in developing customers overseas, and this is the wrong signal," said Dan Eberhart, chief executive of oil-field services firm Canary and a Trump donor.
Energy Secretary Chris Wright on Wednesday said the administration wouldn't stop all exports of diesel. Instead, he hinted at a voluntary cap on shipments that he said would keep the world supplied and bring prices down in the U.S.
Trump effectively appeared to side with Republicans in contested districts over his oil allies. In recent days, Republicans in Iowa including Sen. Chuck Grassley have urged Trump to impose a ban, saying high diesel prices were hurting farmers.
Trump "wants to see gas prices at the pump fall and is evaluating all options on the table," a White House official said.
Industry officials say their hopes of fending off export restrictions are melting away but that they are still making a last stand. "It's all hands on deck," an energy consultant with ties to U.S. refiners said. "But it doesn't matter. We're not debating policy anymore. They've got to win a couple of key Senate races. The only way to do that is to put the export ban in temporarily."
The industry is making the case that export controls won't just hurt its profits. Curbing U.S. diesel shipments even for a temporary period, executives and lobbyists told U.S. officials, would spur international prices for the fuel to skyrocket. That would lift prices for a broad basket of goods that the U.S. imports from other countries. Some worried other countries might take retaliatory measures curbing supplies to the U.S. as they absorb higher transportation costs.
Higher diesel costs would also curtail supplies of fertilizer and other chemicals that farmers use to grow crops, they argued.
A gallon of diesel cost $6.52 on average in the U.S. on Wednesday, following missile attacks that have disrupted refineries and trade routes in the Middle East and Russia. Big exporters of the fuel, such as China, Japan and South Korea, have also reduced shipments as crude supplies out of the Strait of Hormuz waterway near Iran and Oman have stalled for months.
That has left the U.S. as one of the few major suppliers of diesel on the market-meaning American fuel makers have a lot to lose if the U.S. implements even a temporary export quota. U.S. refineries have been running near full capacity in recent weeks. In the second quarter, earnings at big oil companies surged as they banked on record margins for their refineries.
A full export ban on diesel would leave U.S. refineries with a large surplus of the fuel, which would force them to cut production by almost two million barrels a day, or 12% of refinery runs, according to S&P Global. The firm estimates gasoline production could decline as much as 750,000 barrels a day. Some analysts think that figure would translate into an increase of 25 cents a gallon in gasoline prices.
The oil-and-gas industry has been gearing up for this scenario. Even as energy prices soared and risked feeding into inflation, executives refrained from criticizing Trump, at least publicly.
Some oil executives and administration officials have long held the view that Trump wouldn't hesitate to turn his back on his oil allies if the political circumstances demanded it. Still, veteran energy advisers have said that the industry wouldn't take export controls lying down as it sees them as a red line. It began urging Washington to dismiss calls for an export ban over the weekend, after Grassley advocated late Saturday for a ban and said high diesel prices were pinching American farmers.
One concern the industry has is that restrictions presented as temporary might stay on for longer.
"Bad idea," said Steven Pruett, chief executive of Texas oil producer Elevation Resources. "Ultimately, it will backfire on American consumers as it will disrupt the natural flow of oil and petroleum products."
Comments