Trump’s Diesel Deal Could Buy Some Time But Leaves The Long-Term Problem Unaddressed

Diesel prices are undeniably a national headache in the United States in general and for the Trump administration in particular.

Recent American Automobile Association (AAA) average prices of about $6.28/gallon are roughly double year-ago levels, squeezing farmers, truckers and every business that moves consumer goods. The causes are no mystery: A global refining shortage resulting from Ukrainian strikes on Russian refineries, disruptions stemming from the Iran Conflict, and the fact that American refineries have been running full-out for months — an unsustainable situation that requires relief.

President Donald Trump’s deal with Russian President Vladimir Putin is an attempt to relieve some of the pressure on the U.S. system. Under the arrangement, Russia will supposedly supply more than 300,000 metric tons of diesel — about 2.25 million barrels — to U.S. and global markets this month, another 500,000 tons in November, and 1 million tons in December. Further volumes would depend on the condition of Russia’s own refining sector, which currently isn’t exactly stellar following months of Ukrainian drone strikes.

U.S. refiners have been operating in the mid-to-high 90s percent of capacity since March. Distillate inventories are dangerously low, crack spreads have been extraordinarily wide, and the industry is headed into fall turnaround season. Running plants that hard for so long is not sustainable: Equipment wears out, deferred maintenance accumulates, and there is not spare capacity to bring online. Getting additional refined product onto the market, even for a few months, gives U.S. refiners a little breathing room to schedule needed work without the entire system running at redline.

That said, it seems doubtful that Russia has the current capacity to meet its volume commitments under the deal. Industry intelligence suggests that even the initial 300,000-ton tranche would require restarting damaged units. Bigger deliveries scheduled for November and December would demand sustained recovery of damaged plants plus workable logistics for tankers still constrained by sanctions and insurance issues. It would be a pleasant surprise at least to see Russia meeting its pledges in these circumstances.

And here’s the thing: Russia’s ability to meet its end of this deal hangs on Ukraine and its President, Volodymyr Zelenskyy, living up to its end of the “energy ceasefire” announced by Trump on Sunday. That seems an open question given that Zelenskyy initially claimed to have been caught off guard by the whole thing before amending those remarks after evidence emerged he was fully aware. Relying on either Zelenskyy or Putin to live up to the terms of that or any other deal amid their terrible war seems awfully optimistic.

If the ceasefire does hold and the volumes do somehow arrive on the market on the envisioned timetable, the short-term effect on U.S. prices will likely be limited and temporary. The October tranche represents less than 1 day of U.S. transport-sector diesel demand of 2.9 million barrels per day. The subsequent targets amount to more than that but are still likely to only have limited impact unless sustained over a longer period of time. Launching drone attacks on Russia’s refining sector has been a centerpiece of Ukraine’s war strategy for more than a year now — can we really count on Zelenskyy and his European backers to cooperate with a U.S.-led initiative indefinitely? Only time will tell.

Any visible relief at the pump before the mid-terms would matter politically as well as economically. But, with just three weeks until Election Day, obtaining any such result seems like a pipe dream, both literally and figuratively. After the election has come and gone, the same constraints remain: Utilization rates that are not sustainable, thin inventories, and the absence of new domestic refining capacity. Temporary imports and sanctions waivers can buy time, but they do not substitute for permitting and building additional domestic capacity. Nor do they end the wars raging on two continents that are the proximate cause of the current crisis.

If the new diesel flows and the energy truce are kept, U.S. consumers will no doubt see some price relief. If any of the deal’s fundamentals fail, the pressure on U.S. refineries continues unabated. Either outcome leaves the central problem intact: The U.S. and the world need more refining capacity than current policies and geopolitics have allowed, and two ongoing wars have robbed markets of all their cushions. Something has got to give.

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