After the G7 releases reserves, Trump takes action again to suppress oil prices before the election: reportedly plans to relax tax-exempt "red diesel" usage restrictions

As diesel prices in the United States remain high, the Trump administration is preparing to introduce new measures to bring prices down. This is seen as the latest move to lower the cost of this crucial fuel ahead of the U.S. midterm elections in November.

According to Bloomberg, on Monday, October 5th EST, the Trump administration plans to ease restrictions on the use of "dyed red diesel," with the relevant proposal expected to be announced as early as Monday. Citing people familiar with the matter, the report said the specific details have yet to be fully determined, but the measure will allow wider use of tax-exempt red diesel, including potentially expanding its use to on-road vehicles.

Red diesel is mainly used for agricultural machinery and other off-road equipment. As it is exempt from the federal highway fuel tax, its price is typically lower than that of regular on-road diesel. If the government relaxes its usage restrictions, truckers and other diesel users could cut costs by using this tax-free fuel.

Diesel Prices Remain High as Trump Steps Up Efforts to Ease Fuel Costs

While U.S. diesel prices have fallen from historical highs, they remain significantly higher than at the beginning of the year. According to AAA data, as of last Sunday, the average retail price of diesel in the U.S. was $6.32 per gallon, below the all-time high of $6.53 set last month, but still more than 60% higher than the $3.76 recorded on February 28.

The surge in diesel prices is putting pressure on heavy users such as farmers and truck drivers, especially with the United States currently in the autumn harvest season. Diesel is widely used in road transport, agricultural machinery, shipping, and for heating and power generation in some rural areas, so price increases are also feeding into the costs of transportation and consumer goods.

Thus, with the midterm elections approaching in November, lowering diesel prices has become an important policy goal for the Trump administration. On Monday, Trump will also travel to Nebraska to attend an event, further highlighting his focus on voters in agricultural states.

However, unlike releasing strategic reserves, relaxing restrictions on red diesel primarily reduces the tax burden for certain users and does not directly increase the market supply of diesel. Analysts have previously warned that this measure does little to address the current tight supply in the diesel market.

G7 Just Announced Strategic Releases, Trump Drops Diesel Export Ban

This action is also part of the Trump administration's ongoing efforts to bring down diesel costs.

Last Friday, the G7 and its partners announced a coordinated release of up to 100 million barrels of emergency oil and diesel reserves through the IEA. The action is being initiated immediately and will be carried out over the next four months, with a large portion of diesel released in the first 20 days.

This decision had been under continuous pressure from the Trump administration. Last Friday, Trump stated that the United States would no longer implement a diesel export ban, noting that Europe has ample diesel and that the U.S. would increase supplies as well.

Previously, the Trump administration had seriously considered restricting U.S. diesel exports, and some Republican lawmakers from agricultural states also called for export limits to boost domestic supply and lower fuel prices. However, the energy industry warned that while an export ban might ease supply pressures in the short term, it could cause U.S. refiners to cut output, ultimately pushing up domestic fuel costs.

After the G7 announced strategic releases, the Trump administration turned to other methods to lower domestic diesel costs. Easing restrictions on red diesel is one of the alternative measures currently on the table.

Whether “Red Diesel” Can Truly Lower Prices Remains Unclear

Red diesel and regular on-road diesel are essentially the same fuel, with the main difference being the addition of red dye for identifying its tax-exempt, off-road usage. With expanded use, certain users who would otherwise pay the highway fuel tax may switch to using tax-exempt diesel.

But the core effect of this policy is to reduce the tax burden, not to increase diesel production.

According to analysts cited by Reuters, expanding the use of red diesel does not change the fundamental supply and demand of the diesel market, as refiners will still sell diesel at market prices. Ultimately, the price reduction that can be passed on to consumers will depend on the specifics of the policy design and on how retailers transmit tax benefits.

This means that the Trump administration is currently pursuing two separate paths: on one hand, relying on the G7 and IEA to release strategic reserves and increase short-term market supply; on the other, easing red diesel restrictions to directly reduce the tax burden for certain diesel users.

While the goal of lowering diesel prices ahead of the midterm elections is clear, it remains to be seen whether these two measures can bring lasting changes to the supply and demand dynamics in the U.S. diesel market.