U.S. diesel export ban could hit Brazil hard, experts warn

Brazil could face a sharp impact if the United States restricts diesel exports, energy-market experts say, as President Donald Trump weighs a measure to contain record domestic fuel prices ahead of the Nov. 3 midterm elections.

Brazil relies on imports for roughly 30% of its diesel market, making it particularly exposed to any U.S. restrictions. About 80% of the diesel Brazil imported in September came from the United States, according to a source familiar with the fuel market. India is also an important supplier, though its share is smaller.

Bloomberg reports that U.S. agricultural state lawmakers are urging the White House to halt diesel exports amid the harvest season, driven by increased demand from diesel trucks. Additionally, states like Alaska have requested restrictions as winter nears, when heating fuel consumption rises.

The oil industry, however, could be hurt by restrictions on overseas sales.

“It is as if the two biggest forces within the Republican Party were in conflict. Agriculture and the oil industry are pulling in opposite directions,” said a source familiar with the discussions.

“If exports are banned and refineries have to sell at domestic prices, we need to see who would absorb the difference compared with what they could earn by selling overseas,” the source said.

It remains unclear whether any restriction, if adopted, would be temporary or whether the U.S. government could instead limit overseas sales through export quotas.

Global supplies already under strain

After Russia’s invasion of Ukraine and the ensuing sanctions, discounted Russian diesel became a major source of Brazilian imports, competing with U.S. supplies for the top spot.

However, increased Ukrainian strikes on Russian refineries led Moscow to halt diesel exports in July, exacerbating an already tight market due to supply issues in the Middle East. Additionally, China has focused on its internal needs and limited exports since the U.S.-Iran conflict started on Feb. 28.

Felipe Perez, a director at S&P Global, said that even without an official decision, a potential U.S. export suspension would disrupt global diesel flows because the U.S. is such a major supplier.

“Diesel prices in the United States continue to rise and are beginning to affect American farmers,” Perez said. “If exports are indeed suspended, refineries could reduce production because the domestic market cannot absorb all the volume and storing it is less profitable. That reduction in refinery output could also affect U.S. gasoline production.”

Perez said buyers that currently rely on U.S. diesel would have difficulty finding the same volumes elsewhere. In that case, consumers worldwide would compete for scarcer, more expensive supplies at a time when diesel refining margins have hovered near record levels in recent months.

“Diesel consumers have very little flexibility,” he said. “They cannot simply switch to another fuel. They will have to pay more.”

Reuters reported Tuesday that Trump said he supported banning U.S. diesel exports.

“I’ve already said we shouldn’t export diesel. We produce a lot of diesel. I’ve advocated that. I’ve advocated it with my team,” Trump told reporters before a meeting with Ukrainian President Volodymyr Zelensky.

Treasury Secretary Scott Bessent said the administration is examining whether a ban would be feasible and whether a full or partial restriction could work, Reuters reported. Trump also said he discussed Ukrainian attacks on Russian refineries with Zelensky.

*By Kariny Leal— Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/