Trump to ease dyed diesel limits Oct. 5 as G7 release pulls gasoil crack to $70

The Trump administration is expected to unveil a plan on Oct. 5 that would ease limits on tax-exempt dyed diesel, according to people familiar with the matter. The goal is to pare fuel costs ahead of the November midterms. Full details were not available.

Dyed red diesel is generally reserved for off-road use and carries no fuel tax. Opening it to wider use puts a cheaper gallon in reach for more buyers. Texas has already allowed broader use, and other states have eased red diesel rules as farmers deal with high fuel costs.

For haulers the read is mixed. The fuel most trucks burn is taxed on-highway diesel, so a dyed-diesel order does not cut what an over-the-road carrier pays for a legal fill. Semi drivers are already bearing the brunt of high diesel costs. What the move could do is pull some off-road and farm demand toward the dyed pool, which may ease pressure on the taxed barrel over time. Watch how the final order defines who qualifies.

The G7 release

The bigger near-term price mover came from the G7. The group announced a release of 100 million barrels of crude and diesel, with the draw spread over the next four months. That hit refining margins fast. The ICE gasoil crack fell to about $70 a barrel from as high as $85 in the middle of last week, per Warren Patterson at ING.

A softer crack means refiners earn less on every barrel of diesel they make. If it holds, some of that could feed through to wholesale diesel and, eventually, to the surcharge line on freight invoices. The release also cut the odds of a US diesel export ban, which had been hanging over the market.

Export ban risk

The export ban talk mattered to anyone moving product. A ban would have trapped barrels on the coast and scrambled regional pricing. With the G7 barrels coming and the ban risk down, that scenario looks less likely for now.

Hormuz

LNG traffic through the Strait of Hormuz is ticking back up, with at least three carriers out since late last week. Flows are still more than 75% below pre-war levels. LNG is not diesel. Still, a jumpy chokepoint keeps a risk premium in crude that feeds every distillate price.

What to watch

The Oct. 5 order's fine print on who qualifies. Whether the gasoil crack keeps sliding as G7 barrels hit the market. And whether wholesale diesel follows the crack down into surcharge tables.