U.S. diesel export ban would trim American prices 4% and push European costs higher, Goldman says

A note from Goldman Sachs quantifies the potential effects of a US diesel export ban. It would lower diesel prices in the US while raising them in Europe, but domestic gasoline could become more expensive if refineries cut processing. The analysis treats this as a risk scenario rather than a central forecast. The margin squeeze from US diesel storage filling up is the key mechanism, potentially reducing crude runs. The note highlights the thin cushion in Europe's gasoline market, driving Goldman's recommendation for long European gasoline. With Iranian war curbing Middle East supply, US export decisions could influence product and crude markets.

Goldman argues that a US ban on diesel exports would cheapen diesel at home and make it costlier in Europe, but the resulting pressure on refiners might push gasoline prices up.

Summary of key findings:

• A Sept. 26 report from Goldman Sachs analysts forecasts an initial weekly US price drop of around 25 cents a gallon for diesel, equivalent to roughly 4% from the $6.50 level.
• European wholesale diesel prices would rise by about $3 a barrel (roughly 2%) initially, with strategic reserve releases potentially halving that increase.
• The US is contemplating export restrictions against the backdrop of the Iran war tightening Middle East supply. Platts recorded a record US Gulf Coast ULSD export price of $4.78 a gallon on Sept. 16.
• Goldman sees a ban as 'very plausible' but not its central expectation.
• Since refineries produce diesel, gasoline, and jet fuel jointly, a prolonged ban could lift US gasoline by roughly 30 cents a gallon once diesel stocks hit capacity.
• If a ban ended, American diesel would likely realign with global prices, leaving overall product prices higher than in a no-ban scenario.
• The bank advises buying European gasoline, given rapidly constricting markets and reserves of gasoline in Europe that are a quarter the size of its diesel inventories.

In the Sept. 26 report, Goldman Sachs estimated an initial 4% weekly drop in US diesel prices, which amounts to roughly 25 cents a gallon from the $6.50 starting point. European wholesale prices would go up by about $3 a barrel, or roughly 2%.

According to the analysts, tapping European strategic diesel reserves could counteract around 50% of the initial price spike there. As the top global diesel exporter, the US is considering export limits to deal with rising domestic prices, with Iranian conflict limiting Middle Eastern flows. On Sept. 16, Platts, an S&P Global Energy unit, set a record assessment for US Gulf Coast ULSD exports at $4.78 a gallon.

Goldman called restrictions 'very plausible' but stopped short of making it the base case. Its main worry is the spillover into other products. Since diesel, gasoline, and jet fuel come from the same crude runs, the analysts argue an extended ban would drive US gasoline higher. As diesel inventories near capacity, weaker diesel margins would probably force refineries to trim throughput. Once storage is maxed out, Goldman predicts a 30 cent per gallon hike in US retail gasoline.

The analysts also modeled the aftermath of a ban being lifted. American diesel costs would likely converge again with European and other markets, raising US prices and lowering those elsewhere. Still, the bank argues global refined product costs would remain elevated compared to a scenario that had no ban and no output reduction.

Goldman's trading recommendation is to buy European gasoline. The market is tightening fast, it said, and a potential US curb on gasoline exports would reduce supply further abroad. The analysts pointed out Europe's gasoline reserves are only a quarter the size of its diesel buffers, leaving the continent with far less room to absorb shocks.