Jake Hanley Calls U.S. Diesel Export Ban 'Really Bad Idea' Amid Record Pricing

SPEAKER_1 (0:00)

And joining us now to take a closer look is Jake Hanley, the Chief Growth Officer and Director of Investments at Tucrium. Jake, really appreciate you taking the time. And what a day we're in a week where we've got diesel hitting records. The administration says they're exploring the possibility of an export ban, which on its face seems straightforward, right? We keep more fuel in the US, prices should come down. But you say that logic actually breaks down in the current market. So walk us through that, please.

SPEAKER_2 (0:25)

Yeah, 100%. Thanks for having me back, Marlee. Nice to see you.

I'll give you two words. It's a bad idea. I'll give you three words. It's a really bad idea. In fact, by putting on an export ban on US diesel exports, you are very much likely to see higher consumer prices across our fuel supply.

The reason for that is very simple.

We produce an excess amount of diesel and we export that excess amount. Now, the excess amount is like 1.7 million barrels a day. So this is a tremendous amount of diesel fuel above what we consume at 3.6 million barrels a day. Okay, if you stop sending that overseas, what happens is you have a backup at the ports. And as supply backs up, you cannot store all of that excess diesel, which would eventually result in refiners cutting back on their production. And that just pushes prices up.

SPEAKER_1 (1:26)

So Jake, this is very interesting to me because I've had a lot of diesel conversations. And this is the first one that I'm having about this particular problem. And it seems to me that what you're highlighting here is not an actual issue in a lack of supply nationally. It's really the inability to efficiently move diesel where it needs to go. That is our potential problem going forward.

SPEAKER_2 (1:49)

That is 100% the problem. The United States, our infrastructure is set up to export that excess supply. We do not have efficient means to move that diesel product to where it needs to go in the United States in order to absorb that excess supply. We have a pipeline that runs from Texas and goes up to the Northeast. That is running at full capacity. You can't push more diesel and fuel through that even if we have it. And so you could load trucks, but where are you going to get the trucks?

You could run other boats through the Gulf around Florida and get it back up to New England or through the Panama Canal and up to California. But where are you going to get those ships? We are not built for this.

And so it's an issue where if you back up the supply and the storage fills up, the refiners will cut production. And by the way, when you cut production of diesel, you also end up cutting production of gasoline. There's no way around that. So if we're looking at a situation where the administration really wants to help put a cap on inflation, this would 100% have the opposite impact and make inflation more painful for American consumers.

SPEAKER_1 (2:59)

I'm so glad that you just highlighted the potential for regular gas too, because I think a lot of the part of the conversation that isn't discussed is they're made together, diesel, unleaded gas and jet fuel. So if we were to get this and we saw the refineries then have to cut some of our output because we're already maxing out. What does that mean for the prices of these other fuels? Because just last week, I'm in Chicago, so ours is exponentially higher than some parts of the country, but I paid almost $7 a gallon to fill up my car.

SPEAKER_2 (3:32)

Yeah. So I'm sorry to hear that. That's a lot of money.

The export ban would take a bad situation and make it worse. And that would apply to jet fuel, as you mentioned, and gasoline and consumer prices at the pump. I just want to make a point here that this was not the White House's first choice and they still might not go through this, okay? So there's an opportunity that they don't put this ban in place. And hopefully Christopher Wright, Energy Secretary, is winning in these arguments. But, you know, here's the point. You cannot, through policy, create more diesel or capacity to move that diesel around the world. We are in a situation right now where there are two kinetic wars taking place. The big one that is having a massive impact on diesel is in Russia. Ukraine has been very successful in taking out Russian refining capacity. And so therefore, we have a diesel supply crunch. Russia, their exports are down 80% year over year through August.