Seven dollar diesel!!

"The back bone connected to the neck bone,
The neck bone connected to the head bone,
Oh, hear the word of the Lord."
African-American spiritual, from Ezekiel 37.

You can't "fix" diesel prices without disrupting a complex international supply chain involving multiple products.

Service station near the farm

Trump announced a bright idea in late September. It was simple, understandable, crude, and selfish. We would ban exports of diesel. We would hog it for ourselves. It would hurt everyone else, especially our European allies and friends, but so what? It would mean an oversupply of diesel in the U.S. and would lower our prices. Oil companies wouldn't like it, but Trump has been very good to them so they will complain but stay on Trump's team. Trump would look like a can-do problem-solver and his popularity would soar. 

What's not to like?

This week Trump said the idea was never serious. Nevermind. Trump learned that diesel is complicated. You cannot help purchasers of diesel without, simultaneously, hurting purchasers of diesel, plus everyone else. It would create more economic chaos. Jim Stodder offered to explain it to me. He is a college classmate, but didn't graduate with me in 1971. He dropped out his senior year, spent his 20s working as a roughneck in the oil industry in the U.S. Gulf of Mexico and Latin America, then returned, finished college, then earned a Ph.D. in economics at Yale. 

Stodder

Guest Post by Jim Stodder 

Trump’s noves on diesel 

My brother just asked me what I thought about Trump’s threat to cut off diesel exports. Wasn’t it a good move? After all, it got the EU to open up its diesel reserves.

OK, it does make a kind of sense. But there was a lot of improvising along the way. The original idea was simple: the U.S. is a big exporter of oil and natural gas, and our exporters get a higher price abroad than they would at home.

So in a simpler world, if we stop diesel exports, foreign prices go up and domestic prices fall – a lot. Foreigners cry, but who cares?

Here’s the problem. The East Coast gets most of its fuel by pipeline from the Gulf Coast, and those pipelines run at or near capacity. The rest has to come from abroad. The US is a net exporter of petroleum distillates, but by the US Energy Information Administration’s numbers, imports equal about a quarter of what the East Coast consumes in oil and petroleum products. Canada is the largest single supplier, at more than a third. Trump’s 50 percent tariffs on Canada exempt energy, but an export ban would push up world prices, and East Coast importers pay world prices. They won’t be happy on the East Coast, and lower prices elsewhere will piss off the oil-producing states.

Trump thought this one through about as well as he did the Strait of Hormuz. The domestic half of his export ban was a bust – he even admitted it could drive up gasoline prices. But the foreign half scared the EU, with its shaky economies. So Europe agreed to release diesel reserves to get him to back off – from something he now realizes he shouldn’t do anyway.

But those EU reserves won’t last forever, and Iranian or Houthi drones over Hormuz and the Red Sea aren’t going away anytime soon.

But don’t worry – Trump’s people are working on an oil deal with Russia! Just like the good old days. Remember Rex Tillerson? As CEO of Exxon, he got the Order of Friendship from Putin, one of Russia’s highest honors for foreigners, for teaming Exxon up with Russia’s state oil giant. Then Trump made him secretary of state, the senior cabinet post, in 2017.

He’d love to be buds with Vlad again. They both love oil and gas, and both admire Slavic beauty. What sickens me is that Ukraine will get screwed. I see this as the most important international conflict since WWII. We were on the right side, but Trump is flirting with the bad guys.

And China? It holds 66 percent of the world’s manufacturing capacity for EVs, 73 percent for wind turbines, 83 percent for batteries, and 92 percent for solar panels. Look it up; see the numbers.


We’re handing China the keys to the energy of the 21st century while our gas jalopy sputters along, and Trump dreams of Russian oil and Russian babes.

If every country gets the leader it deserves, we’d better start praying for forgiveness.

 

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