U.S. crude trades $12.62 under Brent, the widest gap since May, as diesel ban talk hits refiners

U.S. crude oil is getting cheaper relative to the rest of the world. West Texas Intermediate futures for November traded at $92.94 a barrel on Friday morning, down 1.8%, while Brent for November was at $105.56, down 1%, CNBC reported. That puts WTI $12.62 below Brent, wider than Thursday's peak discount of $12.02, the largest since May 6, according to a Reuters analysis.

The gap has been $4 or wider every day since July 7, Reuters said. Oil overall eased on Friday after Iran offered to reopen the Strait of Hormuz within seven days if the U.S. meets its conditions.

Freight explains part of the gap. A diesel ban explains the rest.

Two forces are pushing U.S. crude down against Brent, and it helps to separate them.

Shipping. Moving a cargo from the U.S. Gulf to Asia now costs about $50 million in freight, against $16 million before the Iran war, Reuters reported. Bob Yawger of Mizuho told Reuters the spread at which U.S. crude exports break even has moved to about minus $8 a barrel from minus $4. When it costs more to ship U.S. oil abroad, U.S. oil has to be cheaper to find buyers.

The ban. On Mizuho's numbers, freight accounts for about $8 of Friday's $12.62 gap. The remaining $4 to $5 is roughly what traders are charging for the chance that Washington blocks diesel exports. If refiners cannot sell diesel abroad, they run less crude, and domestic crude backs up. Analysts cited by Reuters estimate a ban could cut refinery runs by as much as 12%. Wood Mackenzie put the cut at more than 2 million barrels a day and said storage could fill in just over a month.

The scale: the U.S. produces 5.1 million barrels a day of diesel and net exports about 1.2 million, according to Morgan Stanley figures cited by Reuters. That is about 23% of output. The net figure is lower than the 1.6 million barrels a day of gross exports often quoted in the ban debate, partly because net exports subtract the diesel the U.S. imports, and the two figures cover different periods.

Who it hits

• Truckers and fleet owners. Diesel hit a record $6.528 a gallon this week and was $6.514 on Thursday, per AAA data cited by Reuters. A small fleet buying 5,000 gallons a week spends about $32,600 at that price. Every 10 cents on the pump price is $500 a week for that fleet.
• Refiners. Cheaper domestic crude helps their costs, but only if they can sell what they make. The widening spread is the market saying it doubts they will be able to.
• Drivers, later. Reuters notes a bigger crude discount can point to higher gasoline prices to come, because refiners that cut runs make less of every fuel, not only diesel.

24,679 independent trucking and freight are listed on CheckThisBiz, a directory of 7,704,724 independent US businesses, including 2,868 in TX, 2,828 in CA, 1,916 in FL. Chains and franchises are excluded from that count, so these are the owner-operated businesses that actually apply for funding.

For those owner-operators, the pump price is the number that matters, and a ban is meant to lower it in the short run. The risk flagged in the Reuters analysis is that lower refinery runs push diesel back up once storage fills. Our trucking operating playbook covers fuel costs in more detail. Earlier coverage: the White House's 90-day ban draft and Trump's backing for a ban.

Sources: Reuters; CNBC; AAA via Reuters; Morgan Stanley, Wood Mackenzie, and Mizuho as cited by Reuters; CheckThisBiz. The spread, the share of diesel exported and the fleet cost examples are Chronicle calculations. This is market information, not investment advice.