U.S. diesel prices remain high despite Trump’s moves to increase supply

By Jarrett Renshaw and Nicole Jao

WASHINGTON/NEW YORK, Oct 9 (Reuters) – U.S. diesel prices remain at near-record highs, up 70% since the start of the Israeli-U.S. war with Iran, despite two recent moves by President Donald Trump to increase supplies: pressuring allies to release their emergency reserves and “expanding access to tax-exempt red-tinted diesel.”

The wars in Iran and Ukraine have triggered a serious crisis in the global fuel supply, pushing the average price of diesel in the United States to $6.28 a gallon on Friday, according to motorists group AAA.

“Aside from a recession that weighs on consumption, the only thing that can prevent oil prices from rising further and put them on a sharp downward trajectory is a lasting end to the conflicts in the Persian 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 Nov. 3 midterm elections. The cost of living is the top issue cited by voters in a Reuters/Ipsos poll, and high diesel prices are putting particular pressure on traditional Republican constituencies: farmers, truckers and rural voters.

Trump’s approval rating is at a career low, at 32%, according to the poll.

The administration has touted a G7 deal to release 100 million barrels of oil and petroleum products as a major step to help lower prices, but those barrels appear to largely cover what remains of an emergency release in March by members of the International Energy Agency, rather than new supply.

A White House official disputed that characterization, saying previous commitments did not specifically address refined products. The administration negotiated for previously committed barrels to be loaded with diesel and released within a tight time frame starting immediately, the official said.

The White House said Trump was focused on mitigating temporary disruptions while pursuing longer-term energy policies.

RED TINTED DIESEL

The administration’s other major initiative, an executive order allowing red-dyed diesel on public roads through the end of the year, has seen limited industry adoption. The fuel is chemically identical to what trucks normally burn, but it is tinted to show that it is exempt from the federal tax of 24.4 cents per gallon.

The order defers the federal tax and removes penalties for burning fuel off-road on highways. But large retailers and distributors remain reluctant to sell it due to unclear tax obligations, logistical hurdles and the risk of fines when trucks cross state lines.

The tax savings are relatively small with diesel prices above $6 per gallon.

David Fialkov, who lobbies on behalf of NATSO, a trade group for 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 it was unlikely that most reputable retailers and marketers would do so.

John Tirado, president of New Jersey-based commercial fuel supplier Summa Energy, called the red-tinted diesel plan “a Band-Aid on a much bigger problem.”

The White House said more than 4,000 retailers distribute tinted diesel. He said the Treasury Department’s guidance would clarify the rules, allowing drivers to use it without federal taxes or penalties. He said the savings should offset detour costs for truckers looking for fuel.

“The fundamental problem facing the United States is not taxation but an exceptionally tight global market for refined products,” said Caspian Conran, senior economist at Baringa, citing disruptions to energy flows from the Middle East and reduced refining output elsewhere.

He described these measures as short-term measures ahead of the election that could provide “probably a few weeks of relief”, rather than a lasting solution.

(Reporting by Jarrett Renshaw in Washington, additional reporting by Nicole Jao in New York and Timothy Gardner in Washington; editing by Nathan Crooks, David Gregorio, Rod Nickel)