"Not such a great idea": How banning diesel exports to lower prices could backfire

When Sarah Degn, owner of Fresh Hopped Farm in Sidney, Montana, last bought diesel for her farm equipment back in July, she paid $3.60 a gallon.

“Which was still a little over a dollar more than I paid a year before that,” Degn said.

Her 700-acre farm grows corn, soybeans, wheat, and some alfalfa. She has already harvested the wheat for the season, which took about a thousand gallons of diesel. Now, it’s time to fill up her tanks again.

“I got my prices this morning, and regular diesel is $6.14, and the dyed diesel that goes in the tractors is $5.60,” Degn said. “So, if I fill both of my tanks — which are both currently empty — it will cost me $11,740 as of this morning.”

Diesel prices keep hitting record high after record high. Nationally, a gallon of diesel costs $6.52 on average right now, up from $3.68 a year ago.

That hike is hitting farmers particularly hard — much of their equipment runs on diesel — which has Iowa Senator Chuck Grassley, Louisiana Governor Jeff Landry, and others calling on the Trump administration to temporarily ban diesel exports to bring down prices.

“It sounds like a fairly easy thing to do that would maybe increase the supply of domestic diesel,” said Hugh Daigle, a professor of petroleum engineering at the University of Texas at Austin.

But while it might reduce prices temporarily, “in the long-term, it's probably not such a great idea,” Daigle said.

Diesel is a global market, and if the U.S. pulled its exports out of that market, “you would see global prices for diesel skyrocket,” said Bob McNally, founder and president of Rapidan Energy Group.

That would immediately push prices up on the East and West Coasts, where most diesel is imported. Even though the U.S. produces plenty of diesel, there’s no good way to transport it across the country.

“Now, for a brief period of time, the pump price in Texas and Louisiana and some of the Midwestern states would collapse,” McNally said.

But he said oil refiners would then see their profits collapse, too.

“And in response to that, refiners will reduce their production,” he said.

And reduced production would push prices right back up.