U.S. diesel prices remain at near record highs, up 70% since the U.S.-Israeli war on Iran began despite two high-profile recent moves by President Donald Trump to boost supplies of the fuel: pressuring allies to release emergency reserves and expanding access to tax-exempt red-dyed diesel.
The wars in Iran and Ukraine have triggered an unprecedented global fuel supply crunch, pushing average U.S. diesel prices to $6.28 a gallon on Thursday according to AAA.
“Aside from a recession that hammers consumption, the only thing that can prevent oil prices from rising further and put them on a sharp downward trajectory is a durable end to conflicts in the Arabian Gulf and between Russia and Ukraine,” said Bob McNally, president of Rapidan Energy Group. “Otherwise, policy options range from marginal to counterproductive.”
High fuel prices have made it harder for Trump and his Republican Party to defend narrow congressional majorities in the November 3 midterm elections. The cost of living is the top item cited by voters in a Reuters/Ipsos poll, and high diesel prices put particular pressure on traditional Republican constituencies: farmers, truckers and rural voters.
Trump’s approval rating is at a record-low 32%, according to the poll.
The administration has touted a G7 agreement to release 100 million barrels of oil and petroleum products as a major step to help ease prices, but those barrels appear to largely cover what remains of a March emergency release by International Energy Agency members, rather than new supply.
Trump eases restrictions on 'red-dye' diesel
A White House official disputed that characterization, saying the earlier commitments were not specifically for refined products. The administration negotiated for the previously committed barrels to be front-loaded with diesel and released on a tight timeline beginning immediately, the official said.
The White House said Trump was focused on easing temporary disruptions while pursuing longer-term energy policies.
The administration’s other major initiative, an executive order allowing red-dyed diesel on public roads through year-end, has drawn limited industry uptake. The fuel is chemically identical to what trucks normally burn but is tinted to show it is exempt from the 24.4-cent-per-gallon federal highway tax.
The order defers the federal tax and waives penalties for burning off-road fuel on highways. But major retailers and marketers remain wary of selling it because of unclear tax liabilities, logistical hurdles and the risk of fines when trucks cross state lines.
The tax savings are relatively small with diesel prices above $6 a gallon.
David Fialkov, president of NATSO, which represents truck stops and travel centers, said the White House appeared to be encouraging the supply chain to sell dyed fuel through channels not traditionally used for highway diesel, but said most reputable retailers and marketers were unlikely to do so.
John Tirado, president of New Jersey-based commercial fuel supplier Summa Energy, called the red-dyed diesel plan “a Band-Aid on a much bigger problem.”
The White House says more than 4,000 retailers distribute dyed diesel. It said Treasury Department guidance will clarify the rules, allowing drivers to use it without federal tax or penalty. It says the savings should outweigh any detour costs for truckers seeking out the fuel.
“The fundamental problem facing the U.S. is not taxation but an exceptionally tight global market for refined products,” said Caspian Conran, lead economist at Baringa, citing disruptions to energy flows from the Middle East and reduced refining output elsewhere.
He described the measures as short-term steps ahead of the election that could provide “probably a few weeks of relief,” rather than a durable solution.
