Can Global Markets be Tamed by Domestic Decisions?

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Written by Daniel Graeber for IIR News Intelligence (Sugar Land, Texas)

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Summary

Despite near-universal condemnation, the White House is said to be mulling a ban on diesel exports. Federal data show both diesel and gasoline production are higher than year-ago levels.

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Exports Bans would Limit Supplies

A lack of progress in diplomatic efforts to resolve Middle East tensions is keeping commodity prices elevated, prompting the White House to consider a ban on exports of some refined petroleum products.

On the supply side, federal data show the market is fine despite some issues at the refinery level. Finished motor gasoline production over the week ending Sept. 18 was 9.6% higher than year-ago levels, while production of distillate, a refined product category that includes diesel, was up 3.7% year-on-year.

Prices, however, are another matter. A geopolitical risk premium continues to support the price of oil, and those prices have rallied recently against the backdrop of a lack of diplomatic breakthroughs to end the Middle East conflict during this year's meeting of the UN General Assembly.

U.S. President Donald Trump threatened to annihilate Iran during his speech, while Iran's president said his nation was a victim of aggression from a rogue superpower. The conflict, raging since the end of February, has undermined the health of the global economy both with supply-side disruptions stemming from maritime risks and from runaway commodity prices.

The price for Brent crude oil, the global benchmark, was up 2% in early Thursday trading to move near $105 per barrel. It's up 16% so far this month, and taking commodity prices with it.

For Thursday, travel club AAA put the national average retail price for a gallon of regular unleaded gasoline at $4.48, a good 40% above year-ago levels. At $6.51, meanwhile, diesel prices are up nearly 75% compared to the same time last year. Given its near-ubiquitous role in transporting goods, those prices could make their way to the consumer level.

The White House has been mulling a series of measures meant to offset some of the war-related pain on commodity prices, including a recent proposal to ban the export of diesel. According to industry voices, however, that would have the opposite effect as it would further diminish global supplies, and it's largely global issues that drive the price of commodities.

"As the world's largest diesel exporter, a ban risks triggering a cascading effect across energy markets, driving up costs for consumers, squeezing U.S. refiners, and jeopardizing supplies of gasoline and jet fuel that Americans depend on every day," a statement from the U.S. Chamber of Commerce read.

The American Petroleum Institute, which lobbies on behalf of the fossil fuels industry, issued a statement Wednesday that included a who's-who list of market analysts claiming the export ban would be a bad idea.

"It's a gimmick," the API quoted US Sen. John Cornyn, a Republican representing Texas, as saying.

Refinery Runs Limited by Maintenance

Industrial Info Resources in a weekly report on downstream activity in the U.S. market showed outages at the refinery level for crude oil increased by 407,000 barrels per day (bpd) week-on-week over the seven-day period ending Sept. 18.

"US refining outages were higher than expected due to unplanned outages and extended maintenance," the report read.

PADD 2, a district that covers the midcontinent and the broader Great Lakes region, saw the most pressure from planned and unplanned outages during week ending Sept. 18, with data from the U.S. Energy Information Administration showing a 10.35% decrease in refinery runs to average week-on-week compared to a nationwide decline of 3% over the same period.

ExxonMobil suffered a power outage on Sept. 13 that led to a plant-wide shutdown of its 250,000-bpd refinery in Joliet, Illinois, according to Industrial Info Resources data. Over in Delaware, meanwhile, PBF was forced to shut down parts of its Delaware City Refinery following a fire on Sept. 21, compounding the regional woes.

By the Numbers

• $75% year-on-year increase in retail diesel prices
• 3.7% year-on-year increase in production of distillates, a refined product category that includes diesel

Key Takeaways

• Near-universal critique of U.S. proposal to ban diesel exports.
• Federal data show domestic production is actually holding up.

About Industrial Info Resources
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, Industrial Info Resources is tracking over 250,000 current and future projects worth $30.2 Trillion (USD).