CHICAGO, ILL. (RFD NEWS) — Diesel prices remain elevated as fall harvest progresses, adding another layer of cost pressure for farmers and shippers.
GasBuddy petroleum analyst Patrick De Haan joined us on Tuesday’s Market Day Report to discuss several factors affecting diesel prices nationwide, including refinery outages, regional supply differences, and geopolitical tensions.
Refinery Issues Ease in Midwest
In his interview with RFD News, De Haan said diesel prices in the nation’s interior have surged in recent weeks because of refinery outages, although some of those issues have now been resolved.
“The nation’s interior has seen diesel prices skyrocket because of refining outages that have now been addressed,” De Haan said.
He said diesel prices have fallen somewhat over the past week, with the national average down nearly 10 cents per gallon to about $6.42 at the time of the interview.
In the Midwest, De Haan said prices could begin declining more quickly now that a refinery outside Chicago is back online and diesel production has returned to normal.
“Diesel production has returned to normal, so hopefully some good news at least in the short term, diesel prices may moderate,” he said.
However, he said prices remain near record levels.
Diesel Export Ban Could Have Unintended Effects
There has been discussion in Washington about restricting U.S. diesel exports as a way to lower domestic prices.
De Haan said an export ban could provide some short-term relief but could also create longer-term problems.
“Government controls on exports certainly would be very worrisome up and down various industries,” De Haan said.
If refiners see excess diesel supplies, they could reduce production, he said.
“If refineries start to notice an excess of diesel, they’ll simply likely reduce production, which could exacerbate the issue,” he said.
De Haan said an export ban could also affect gasoline and jet fuel prices.
Location Matters
De Haan said the issue is not simply how much diesel the U.S. produces, but where that fuel is located.
“It’s all about location when it comes to refineries,” De Haan said.
A significant amount of refining capacity is concentrated along the Gulf Coast, including in Texas and Louisiana. Those refineries have been built with access to export markets in Latin America and South America.
He said that creates a regional imbalance, with some areas having more diesel supply than others.
“So that is where an excess of diesel, excuse me, just refining capacity exists,” De Haan said. “And that’s where a lot of the nation’s surplus of diesel is, not necessarily everywhere.”
Keeping more fuel in the U.S. could initially push prices lower, De Haan said, but refiners have limited storage capacity.
“Refineries don’t have an unlimited amount of tank storage capacity,” he said.
If inventories rise too much, refiners could reduce production, potentially affecting the overall supply of refined products.
Jones Act Waiver Could Improve Regional Supply
De Haan said extending a Jones Act waiver could help move diesel from areas with excess supply to regions that need it.
“It would hook up diesel to where it needs to go,” De Haan said.
He said Jones Act restrictions can make it more difficult to move diesel from the Gulf Coast to areas such as the Northeast.
De Haan said maintaining access to Gulf Coast diesel would be important given current market conditions.
Geopolitical Tensions Remain a Factor
Looking ahead, De Haan said significant relief would likely depend in part on easing geopolitical tensions that have disrupted global energy markets.
“Beyond that, we’d be looking for significant relief to come from the very geopolitical tensions that have inflamed prices to begin with,” De Haan said.
He pointed to developments involving the U.S. and Iran, as well as attacks on Russian oil refineries, as factors that could influence diesel supplies and prices.
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