Goldman Sachs is modeling the potential impact of US restrictions on diesel exports—and says the policy could create sharp divergences between domestic and overseas fuel markets.
The bank says an export ban would initially weigh on US diesel prices as inventories build. With storage still available, every week of restrictions could push US retail diesel prices about 25 cents per gallon lower, equivalent to just under 4% of current prices near $6.50 per gallon.
The situation would become more complicated if the restrictions lasted long enough to fill storage capacity. Diesel, gasoline and jet fuel are largely produced together, meaning weaker diesel economics could eventually force US refiners to reduce overall output. That would tighten gasoline supplies and push gasoline prices higher.
Goldman estimates that, once diesel storage is full, each additional week of an export ban could lift US retail gasoline prices by roughly 30 cents per gallon. Refining margins would come under pressure, while US refiners would likely face incentives to reduce production.
The impact would not be limited to the US. Restrictions on American diesel exports would tighten supplies in overseas markets, with Goldman estimating that European wholesale diesel prices could rise by about $3 per barrel for every week of an export ban. Releases from Europe’s strategic petroleum reserve could offset roughly half of that increase.
Any ban would also leave a lasting market distortion. Once restrictions were removed, US diesel prices would likely reconnect with global prices, putting upward pressure on domestic diesel while weighing on prices elsewhere. Goldman says refined product prices would likely be higher than they would have been without either the export ban or the resulting decline in US refinery output.
For investors, Goldman continues to recommend hedging geopolitical risk through long positions in European gasoline. The bank points to rapidly tightening gasoline markets, the possibility that gasoline could eventually be included in US export restrictions, and Europe’s relatively limited gasoline reserves—about four times smaller than its diesel stocks.
This article was written by Adam Button at investinglive.com.