Is Fuel-Export Ban Trump's Last Option to Ease Prices? How it Could Work

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President Trump is running out of options to help contain a historic rise in fuel prices that has Republicans on edge ahead of the midterm elections.

With November approaching, the oil-and-gas industry is becoming concerned that the U.S. might ban the exports of some types of fuels, such as diesel.

Senate Majority Leader John Thune (R., S.D.) said Tuesday that he was open to exploring a ban. Rep. Tim Burchett (R., Tenn.) has proposed implementing export controls on diesel. Although cabinet members have long shot down the idea, more recently they have appeared to leave the door open to potential restrictions.

The national average price for a gallon of diesel topped $6 for the first time last week and now sits at $6.40. Already up 95 cents in the past month, prices are expected to keep climbing as farmers gear up for the harvest season and large parts of the Northeast are less than a month away from burning heating oil to stay warm.

Analysts and oil executives say curtailments could have unintended consequences that would likely end up increasing prices domestically. Here's how a ban might work:

Why would the U.S. impose a ban in the first place?

The Iran and the Russia-Ukraine wars are both taking a toll on the global refining complex. Missile strikes have stunted refineries in the Middle East, and Ukrainian drones have struck a number of fuel-making plants in Russia. As a result, much of the world is tapping the U.S. for extra supplies.

The U.S. has some of the largest refineries globally, with huge complexes on the Gulf Coast and in the Midwest and California. America produces more fuel than it consumes, and refiners have historically shipped large amounts abroad to chase higher prices.

The issue: As refiners increase exports, that puts pressure on prices at home because less fuel is available. In theory, forcing companies to keep the products within the U.S. would lift supplies-and lower prices.

How would a ban work?

A ban would likely target diesel, which has come in short supply globally-and it probably would be short-lived so as to avoid important disruptions. Some energy advisers say the Trump administration could do a partial ban, for instance, cutting authorized exports by a certain percentage. It could also tie exports to inventory levels: As commercial inventories went down past a certain level, so would refiners' export allocation.

Would a ban bring down prices for long?

Longer term, a ban could backfire, analysts say. American fuel makers produced more than 5.5 million barrels a day of diesel and renewable diesel on average over the past four weeks, according to the Energy Information Administration. At the same time, U.S. companies exported about 1.7 million barrels a day of excess diesel that stateside truckers, farmers and other commercial shippers didn't consume.

Removing those barrels from global circulation could temporarily ease domestic prices while putting pressure on buyers in Europe and Asia to seek supplies elsewhere. But eventually, U.S. refineries are likely to account for the drop in demand by curtailing the amount of crude they process daily to make diesel and other fuels, such as gasoline and jet fuel, said Andy Lipow, president of Lipow Oil Associates in Houston.

"Shortages would develop in those product categories, and I would expect higher prices at the pump," Lipow said.

Has this been done before?

The U.S. imposed a 40-year ban on exports of crude in 1975 in the aftermath of the Arab oil embargo when the country relied heavily on foreign crude for its refineries. The shale revolution made the U.S. the world's largest oil producer, and Congress lifted the ban in 2015. But banning crude exports wouldn't bring much relief to Americans because the most acute chokepoint is the lack of global refining capacity to transform crude into fuel, which raises diesel prices around the world, including the U.S.

What has the administration said about potential restrictions?

The administration has repeatedly shot down the idea of a ban, in private meetings with oil-and-gas executives and publicly. But in recent weeks, it has appeared to soften its stance.

In a CBS interview earlier this month, Energy Secretary Chris Wright was asked whether an export ban was off the table. Wright didn't rule it out. At a G-20 event in Houston this week, Interior Secretary Doug Burgum said the administration would consider an export ban if it thought it might actually lower prices, but he said that wasn't the case. "We'll do anything that helps the price at home, but we're also going to be smart about how we do that," he added.

A White House official said the ban hadn't been considered to be a viable option.

What does the oil-and-gas industry say about a potential ban?

Oil-and-gas executives, investors and advisers say a ban would be a disaster. One major risk would be that refiners that produce more than they can sell at home churn out less fuel.

Billionaire oil baron Harold Hamm told reporters Wednesday that he wouldn't support an export ban. "I think that open trade and open exports certainly have to continue," Hamm said. "That's not going to help, putting a ban on exports. It'll just jack the price up further."

David Goldwyn, a former special energy envoy for the Obama administration and president of advisory firm Goldwyn Global Strategies, said he doubts the Trump administration would risk angering the oil industry and other key players in the Republican base.

"Ultimately, it just works for a couple of months, and then you get higher prices anyway," Goldwyn said. "I think they certainly know that-whether they have the discipline is another matter."

This explanatory article may be periodically updated.

 

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