U.S. diesel just crossed $6.50 a gallon for the first time. Now Republican lawmakers want to cap the exports that helped get refiners' stock prices there.
U.S. retail diesel prices have climbed above $6.50 a gallon for the first time on record, according to AAA, as the wars in Ukraine and the Middle East squeeze global refined-product supply from two directions at once. The pain at the pump has been a windfall for refiners: Valero Energy, Marathon Petroleum and Phillips 66 have each posted sharply higher quarterly profits this year, and the S&P Composite 1500's oil refining and marketing index has more than doubled year to date.
That rally is now running into a policy risk of its own making. Republican lawmakers have pressed the White House to consider restricting U.S. diesel exports ahead of November's midterm elections, hoping to bring pump prices down before voters go to the polls. The prospect alone was enough to move the stocks: Jefferies analyst Lloyd Byrne downgraded both Valero and Marathon Petroleum to hold from buy this week, citing rising political support for an export cap, while Citigroup analyst Vikram Bagri warned that a full ban "would likely spell the end" of the refining sector's run.
The underlying tension is straightforward. Restricting exports would likely lower domestic diesel prices in the near term by keeping more barrels at home, but it would do so by cutting into the same margins that have driven refiners' stock prices to records this year, and could ultimately push refiners to trim production, with knock-on effects for gasoline and jet fuel prices as well.
Separately, President Trump is pressing Ukrainian President Volodymyr Zelenskyy toward an energy truce with Russia, arguing that Ukrainian drone strikes on Russian refineries have already left Moscow having "unfortunately lost control" of its diesel industry and that continued strikes are "hurting the world" by adding to the same global supply squeeze pushing U.S. prices to records. Zelenskyy has said Kyiv is open to "strong de-escalation steps" if Russia stops targeting Ukraine's own energy infrastructure in return.
Technical analysts are separately flagging the refiners' rally itself as stretched. BTIG's Jonathan Krinsky noted the sector's valuation relative to its own trading history has reached levels that, historically, have preceded a pullback within about two months, and said a drawdown "as much as 30% to 40%" wouldn't surprise him even without a policy trigger. Between a possible export cap and a rally that was already due for a rest on its own terms, refiners are facing their first real test since diesel prices, and their own stock prices, started setting records.