- JPMorgan analysts including Natasha Kaneva wrote Thursday that a 30-day export halt combined with a Jones Act waiver could work surprisingly well initially, with retail diesel falling to $4.70 a gallon within 15 days from record highs above $6.50. Distillate stockpiles, currently at their lowest-ever seasonal level, would reach the five-year average within two weeks and 140 million barrels after 30 days, a level last seen in 2021.
- The analysts warn conditions would deteriorate quickly afterward, as storage economics turn unattractive and margins compress, likely pushing refiners to process less crude and produce less fuel of every kind.
- Forecasts for how long storage takes to fill vary widely. Morgan Stanley analysts including Martijn Rats estimate three weeks on the Gulf Coast, Steven Barsamian of The Tank Tiger says four to eight weeks, a senior US refiner executive says six to eight weeks at near-record production rates, and Citigroup says roughly two months to reach historical peaks, with some traders suggesting two to three months.
- The US exported 1.6 million barrels of diesel a day in August, overwhelmingly from the Gulf Coast, according to JPMorgan. Moving that fuel to the East and West coasts is constrained, since tankers have limited capacity and no fuel pipelines connect Texas and Louisiana to California.
What Happened?
The administration is weighing options to lower prices ahead of the November midterms as the wars involving Iran, Russia and Ukraine squeeze diesel supply. Trump has said he encouraged advisers to support an export ban, though the White House denied a Politico report that a 90-day halt was under consideration. Energy Secretary Chris Wright said the administration is seeking to help industry raise diesel supply without a government ban on foreign sales. S and P Global analysts including Debnil Chowdhury wrote earlier this week that refineries might not fill storage at all given the cost of holding surplus fuel, and would instead cut production immediately.
Why It Matters?
The spread between a three-week estimate and a three-month one is not analytical noise, it turns on a single question: whether refiners keep running at near-record rates once domestic prices collapse and the export outlet closes. If they do, storage fills fast and relief is brief. If they behave as S and P expects and cut immediately, tanks may never fill and the price drop is smaller and shorter than advertised. The policy therefore depends on refiners continuing to produce into a market where their product is capped and their crude is not, which means it depends on companies acting against their own margins. That is not a reliable foundation for a supply plan. For investors the read-through is direct even though the article names no refiner: a domestic price collapse with no export escape valve compresses crack spreads, and the companies with the most Gulf Coast capacity carry the most exposure. The Jones Act waiver is the operationally decisive element and receives the least attention. Without it, fuel cannot legally move from the Gulf Coast to the East and West coasts on foreign-flag tankers, and with no pipelines to California the waiver is what makes the entire redistribution physically possible. Any ban announced without it would strand supply rather than move it. The calendar also deserves plain statement. A 30-day ban delivering a 28% price drop within 15 days covers the November midterms and expires afterwards, which aligns the relief with the political timetable rather than with the supply problem.
What Next?
Watch whether any ban is paired with a Jones Act waiver, since the two together are what JPMorgan modelled and a ban alone produces a materially worse outcome. Weekly Energy Information Administration distillate inventory data is the metric that will settle the competing timelines, and the first two prints after any announcement will show whether stocks build toward the five-year average or stall. Refinery utilisation rates are the other series to follow, because a decline would confirm the S and P view that producers cut rather than store. The White House has denied the 90-day report while Wright promotes a voluntary approach, so the split between those two positions is worth tracking. The midterms on November 3 are the deadline that gives the proposal its urgency, and the policy question afterwards is whether a temporary ban is allowed to lapse or extended into a market that has by then lost export customers.
Affected Tickers and Coins: HO, CL, VLO, MPC, PSX
Source: Bloomberg
