Goldman’s note puts a number on how a US diesel export ban would ripple through oil products. Diesel would fall in the US and rise in Europe, while gasoline could climb at home as refiners cut output. The analysts do not treat a ban as their base case, so the scenario is best read as a risk for the refined products complex rather than a forecast. Refining margins are the pressure point, since full US diesel storage would squeeze margins and could push refiners to run less crude. The note also leaves Europe’s gasoline market looking thinly cushioned, which explains Goldman’s preference for long European gasoline. With Middle East supply curbed by the war with Iran, headlines on any US export decision could move product cracks and crude.
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Earlier:
- Follow up … Trump weighs diesel export ban: can a limited curb avoid the backlash?
- White House edges closer to 90-day US diesel export ban despite cabinet pushback
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Goldman says a US diesel export ban would make diesel cheaper at home and dearer in Europe, but the knock-on hit to refiners could send gasoline higher.
Summary:
- Goldman Sachs analysts said in a Sept. 26 report that a US diesel export ban would initially lower US prices by about 25 cents a gallon each week, roughly 4% from around $6.50.
- European wholesale diesel would rise by about $3 a barrel, or roughly 2%, initially, and releases of strategic European diesel reserves could offset about half of that.
- The US is considering export curbs as the war with Iran has curbed Middle East supply, and Platts assessed US Gulf Coast export ULSD at a record of around $4.78 a gallon on Sept. 16.
- Goldman called a ban “very plausible” but not its base case.
- The analysts said diesel, gasoline and jet fuel are largely produced together, so a longer ban would likely push US gasoline higher, by about 30 cents a gallon once diesel storage is full.
- If a ban were lifted, US diesel would likely reconnect with prices elsewhere, and global product prices would probably end up higher than with no ban at all.
- Goldman recommends buying European gasoline, citing a rapidly tightening market and gasoline reserves in Europe that are four times smaller than its diesel reserves.
Goldman Sachs analysts estimate that a US ban on diesel exports would initially lower American diesel prices by about 25 cents a gallon each week, or around 4% from the current level of about $6.50, while raising European wholesale prices by about $3 a barrel, or around 2%. The estimates come from a report the bank published on Sept. 26.
The analysts said releases from European strategic diesel reserves could offset roughly half of the initial increase on the continent. The United States is the world’s largest diesel exporter and is weighing export curbs to counter surging domestic prices, as the war with Iran has curbed Middle East supply. Platts, part of S&P Global Energy, assessed the US Gulf Coast export ultra-low-sulfur diesel price at a record of around $4.78 a gallon on Sept. 16.
Goldman described restrictions as a very plausible scenario, but not its base case. The bank’s central concern is the knock-on effect for other fuels. Because diesel, gasoline and jet fuel are largely produced together, the analysts said a longer ban would probably push US gasoline prices higher. As US diesel stocks approached storage limits, they said, falling diesel prices would squeeze refining margins and would likely prompt refiners to reduce output. Once diesel storage is full, Goldman expects US retail gasoline to rise by about 30 cents a gallon.
The analysts also considered what would follow if a ban were lifted. US diesel prices would likely reconnect with those elsewhere, including Europe, lifting American prices and easing them abroad. Even so, Goldman said global refined product prices would probably stay higher than in a world with neither a ban nor the resulting fall in US refinery output.
On positioning, Goldman recommends buying European gasoline. It said gasoline markets are tightening rapidly, and that a possible US export ban on gasoline would tighten supply outside the United States. The analysts noted that Europe’s gasoline strategic reserves are four times smaller than its diesel reserves, leaving less of a buffer.
This article was written by Eamonn Sheridan at investinglive.com.