The President is considering a diesel export ban to solve high domestic prices. This is like trying to lose weight by smashing your bathroom scale.
Analysts say the ban could push global diesel prices higher. Global diesel prices going higher means U.S. refiners can charge more domestically because diesel is fungible and arbitrage exists. But sure, let's ban exports and act surprised when the same oil companies that were going to sell it overseas just raise prices here instead.
The supply crunch worsens, according to the headline. It worsens because demand exists and supply does not. This is what happens when you treat commodities markets like a game show where the President pulls levers and prizes fall out.
Retail traders are currently Googling "what is diesel" and "can I trade diesel on Robinhood." The answer is no, but they will find a leveraged ETF that sort of tracks energy and lose money on it anyway. They will then tweet about market manipulation.
The backfire scenario is my favorite part. Ban exports to lower domestic prices. Exports get banned. Global prices spike. Refiners adjust production. Gasoline prices climb because refineries are not cafeterias where you just order more of the thing you want. They are giant chemical crackers that produce fixed ratios of products. You want more gasoline? Great, you are also getting diesel and jet fuel and about nine other things whether you like it or not.
Trump will announce this policy to thunderous applause from people who think the President controls gas prices with a dial in the Oval Office. Those same people will blame him six months later when diesel is somehow more expensive and their F-250 costs $200 to fill. By then he will have moved on to banning something else, and the cycle will continue, because policy is just vibes now and vibes do not care about refinery economics.
Photo by Ivan Karpov on Unsplash
Leave a Comment