US diesel export ban would cut US prices but raise them in Europe: Goldman Sachs

A US diesel export ban would initially lower prices by 25 cents/gallon each week, or about 4% from the current $6.50/gal in the US, and would raise European wholesale prices by $3/barrel, or about 2%, Goldman Sachs analysts said in a Sept. 26 report.

Releases of European strategic diesel reserves might offset about half of that potential increase in Europe, the analysts said in the report.

The US, the largest global diesel exporter, is considering export curbs to counter surging domestic diesel prices as the US-Israel war with Iran has curbed Middle East supplies. The Platts-assessed US Gulf Coast Export ULSD price hit an all-time high of $4.7833/gal on Sept. 16. Platts is part of S&P Global Energy.

The potential for restrictions on US diesel exports is a "very plausible scenario, though not our base case," the Goldman Sachs analysts said. The longer a ban lasts, it would likely push US gasoline prices higher because diesel, gasoline, and jet fuel are largely produced together, they said.

"Therefore, downward pressure on diesel production can mean downward pressure on gasoline production, i.e. upward price pressure on gasoline," the analysts said. "As US diesel stocks near storage limits, downward pressure on diesel prices would intensify, compressing US refining margins, and likely incentivize US refiners to reduce output."

Once diesel storage is full, US retail gasoline prices would likely go up 30 cents/gal, they said.

If the export ban is lifted, "US diesel prices would likely reconnect with prices elsewhere, including Europe, putting upward pressure on US diesel prices and downward pressure on prices abroad," the analysts said. "Even so, post-ban global refined oil product prices would likely be higher than in a counterfactual with neither a US export ban nor the associated decline in US refinery output."

Goldman Sachs recommends buying European gasoline because gasoline markets are "tightening rapidly" and the possibility of a US export ban on gasoline would tighten markets outside the US. "Europe's gasoline SPR reserves are four times smaller than its diesel reserves," they said.