How Trump’s diesel export ban will backfire

{"text":[[{"start":0,"text":"It isn’t hard to see why US President Donald Trump would say he supports a ban on diesel exports. Looking after hardworking Americans, while sticking it to fuel importers in Europe, makes good political hay ahead of the midterm elections and boasts superficially attractive economics. But such a ban would make Uncle Sam’s problems worse, not better."}],[{"start":23.18,"text":"At present the US exports diesel because it refines far more than the country needs. In the second quarter of the year, it exported a net 1.5mn barrels a day, on Wood Mackenzie data. Yet US prices have soared, along with those in the rest of the world, because producers won’t sell into the domestic market at lower all-in prices than those they could get elsewhere. Diesel mainly goes into trucks and tractors, so high prices hit agricultural states such as Iowa particularly hard and will embed inflation into wide swaths of consumer goods."}],[{"start":null,"text":"

"}],[{"start":53.52,"text":"A ban wouldn’t be workable, though — or at least not for very long. Consider the particular mechanics of the oil market. Refiners produce a “slate” of products, including gasoline, jet fuel, diesel and fuel oil, from a barrel of crude. Of that, diesel accounts for about 30 per cent."}],[{"start":69.4,"text":"The plants can tweak their process to produce a bit more jet fuel, say, and a little less diesel — as they did when airline fuel ran low earlier this year. But their flexibility is limited. So they couldn’t cut back on diesel production without also cutting back on other essential products."}],[{"start":84.56,"text":"In the short term, US prices would drop; those in other countries would rise. But where to store all that extra diesel? By way of reference, current US stocks of middle distillates, which include diesel, are about 70mn barrels below their weekly peak, according to the Energy Information Administration. And once diesel storage is full, plants would need to cut the overall amount of crude they refine, leading to a tighter market for all products including gasoline."}],[{"start":109.52,"text":"Another unintended consequence: if refiners are less active, the US would tend to export more crude oil. That would benefit anyone with spare refining capacity, which at the moment is basically China. President Xi Jinping could increase crude imports at lower prices, and either constrain exports of refined products to rebuild domestic stores or increase them to capture the extra margin."}],[{"start":131.4,"text":"For all of these reasons, a ban is unlikely to remain on the agenda for very long. But, as commodity-exporting countries well know, there are other options to lower the price of domestic fuels. Subsidising diesel, perhaps financing the largesse through windfall taxes on the oil sector, would be a simpler way to achieve lower prices without interfering with physical flows. That’s not an economically sound policy either: it removes an incentive for consumers to cut demand. But it would be less disruptive."}],[{"start":159.92,"text":"Politically, however, beating up successful American companies is less easy a sell than waving a stick at freeloading Europeans, especially for an administration that says it is supportive of businesses being rewarded for their success. That leaves Trump with what has so far been his favoured option: talk a lot, change little, and hope consumers’ patience doesn’t run out."}],[{"start":181.08,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1790226538_6933.mp3"}