Brouillette Says Diesel Export Ban Would Be a Bad Idea

As I look at the price for diesel today, $3, I should say $6.38. It used to have a three handle with this actually do anything to make a difference as long as the street is in this condition. Well, I think you have to address both. And I think that's what the president is trying to do. So obviously the street is important and we have to open the street. I think that's why the third carrier group may be headed in that direction. I think the United States Navy is doing a great job today of escorting the ships through the strait. That has to be fixed, but in the near term, the release of some of these reserves could be helpful. Um, Europe does hit on a fair amount of reserves, as I, Jamison, Ambassador Greer just pointed out, the U.S. does as well. So perhaps we're looking at that. But I think the general approach here is to look at every tool that may be available and to make them available to the marketplace. Well, when we consider the situation in the street, we've seen reporting this week and analysis from various Wall Street shops that say that the flows are actually getting back up to near pre-war levels. If that is the case, how are we still seeing these elevated diesel prices? What is the lag time between having flows resume at that level and actually seeing a reduction in prices that the retail level? Well, I think what's happening is the numbers are trending upwards. So there's no question about that. We went from 4 to 6 million barrels a day, to 8 to 9 to perhaps 10 to 12. We've seen daily spikes as high as 17 and 18, perhaps as high as 20, which are in fact war levels. I think what the market is looking at, however, is that those levels are achieved with the support of the US Navy. It is the escorts that's providing the protection to those ships that allows them to go through. And the market suggests that maybe that can't be a long term solution. Yeah. That cannot be, um, you know, for years and years on and the duration is what the market is looking at. So that's why I said earlier, once the street is open and it's perceived to be permanent, that it's open, then we'll start to see prices relax and come down rather dramatically. Indeed, when you look at the research from JPMorgan and Goldman Sachs pointing to two neutral levels here, crude oil prices were still rising today, as you both referred to. But the refining bottleneck is a completely different story, right? Whether you're talking about diesel, jet fuel or even gasoline. Uh, we could get crude oil flowing all day long, but it might not make a dent in this diesel crisis. No. That's true. I mean, there's a there's a, you know, an important process that sometimes is missed in the conversation. Yes, production is important, but you have to refine that product. You have to get it to the marketplace in the form in which the consumer is asking for it. In this case, it's diesel. So refining capacity is constrained. Here in the United States we're running at roughly 98% utilization rates. Yeah, not much room to expand there unless you're going to build brand new refineries, which is very difficult to do. We've also taken Russia offline with the Ukraine war and then the elements today by China, that they may potentially consider some export bans, if you will, of refined product takes even more product off the market. All the while demand stays steady, perhaps even climbing. So that scarcity in the marketplace is what's driving the price of diesel upward. So that has to be addressed. But that's really an infrastructure problem. We have to build more refineries. We have to build more pipelines to get that crew to those refineries. Well, on that scarcity in the market in Russia, which you mentioned, which has enacted a ban on its diesel exports, China, as you mentioned, is looking at bans as well. President Trump says the United States is talking about this, that he's discussing it with his advisers. If you were advising him now, what would you tell him about that idea of diesel bans? A bad idea, it's a very bad idea. There's no question about that. And I think that's what Secretary Rice, Secretary Burgum and others have argued internally. And the reasons, you know, for that is that, um, you know, the barrel of oil contains several different products diesel, gasoline, uh, naphtha, asphalt, all of those things come from one barrel of oil. You cannot make gasoline without making diesel. So when you ban diesel, you deny the access to international markets. What happens is that surplus builds in the United States, which could temporarily suppress pricing here locally. But at some point, the reason we export is because we consume. We refined more than we consume. You have to store it when that storage runs out. We have a big problem and they start to reduce production here in the US, which raises the price of gasoline. Again, you can't make gasoline without making diesel. So if you have no place to put the diesel, you don't produce anything at all. Four days ago, the Treasury secretary, Scott Benson, said it's two weeks, two weeks before Iran runs into a whole new economic reality, when all of the oil it has on the water has been sold to China. Nothing else is coming out of the Persian Gulf. Do you agree that that two week inflection point is real? And at that point, does the U.S. have more leverage at the table? Yeah, I think, you know, I don't know whether it's two weeks or three weeks or four weeks. I think um, you know, everyone is estimating and he's got more information than I do. So perhaps all four of those timelines are before the midterms. Sure that's true. So, you know, again, he may have much more information than I do, but I do know that we are near, um, you know, the naval blockade is very, very effective, and the regime is beginning to feel the extreme pressures on their economy. We look at the price of the currency, we look at the availability of products. You know, their imports into Iran are probably half of what they were just five, six weeks ago. So the blockade is in fact working. And it's that pressure, I think, that will give them make Iran more dangerous or more malleable. Now, I think it makes it more malleable. Look, I think at some point the regime will go away. And that is the ultimate goal here. Um, so yes, it makes it more malleable. Well, that's the geopolitical, uh, situation, which is obviously a huge contributor to some of the issues we are talking about with elevated prices. But you touched on another one as well, which is that we have limited refining capacity and we're not building any new ones. And many people would point the finger at the, necessary the necessity of permitting reform to ease the process around that and everything else. We saw a deal struck in the Senate before they left town. Won't get a vote until November 9th, but this is bipartisan. You have Shelley Moore Capito and Sheldon Whitehouse singing the same tune here. How do you feel about the deal? What would it accomplish if it is indeed enacted into law? Well, look, I think it's a great step forward. There's no question that permitting is a challenge here in the United States. You know, we, uh, Alan Armstrong is a great former CEO of Williams Companies, now in the Senate leading this effort, along with the two senators that you just mentioned. His quote is still the best I've ever heard. If it takes longer to Bill to get the permit than it does to build the product or the pipeline, we got a problem and we have a problem. So they're attacking it in the right way. I would suggest, however, that it is but an incremental step to the overall problem here in the United States. We're very proud of our judicial system. The challenge is that even if you have a permit, you're still going to get sued and you may get sued multiple times. So permitting reform has to be accompanied by judicial reform as well. That is the ultimate answer. So, you know, I look forward to what the senators do and I hope they pass the bill. I hope they move forward, and I hope they keep considering other elements of it. Looks like we've got a deal. It could emerge in the lame duck session, um, as Kayleigh refers to here. But what happens if we get more pipeline? I mean, it would still take years to open a new refinery. Correct. Let's get another question. Does it change the rules on that line? Yeah, no question about that, Joe. These are not short term answers. I mean, you can't build a refinery in a week and we're not going to. And so let's not pretend otherwise. Let's, you know, present that as an answer to the near-term problem. The near term problem is to open the Straits of Hormuz, is to get these chokepoints under control and to get the oil flowing where it needs to go. It's to solve the equation between Russia and Ukraine. Once we do that, then you'll start to see the near-term solutions. The long term solutions still remain. We need more infrastructure.