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Home Energy Energy-General By Charles Kennedy - Sep 29, 2026, 4:00 PM CDT The White House is considering allowing broader sales of red-dyed diesel, which is largely exempt from federal diesel taxes. Investing.com The proposal has emerged as an alternative to diesel export restrictions, which Energy Secretary Chris Wright and industry analysts have warned could disrupt refinery economics and other fuel supplies. Investing.com U.S. diesel prices reached a record EIA weekly national average of $6.529 per gallon for the week of September 21.
The U.S. federal government has come up with an alternative to a diesel fuel export ban that could alleviate the price pain at the pump by boosting the availability of a tax-free sort of diesel. That’s according to unnamed sources quoted by Reuters this week. It is unclear if the idea is a replacement for the ban or will complement it, should a ban be approved.
The fuel in question is red-dyed diesel, which is used in agriculture and construction, among other industries. Also called off-road diesel, the fuel is literally dyed red to distinguish it from the diesel sold for broad use. The red-dyed fuel is not subject to the federal excise duty and, as such, is cheaper than its broad-use version.
Diesel prices have emerged as a point of acute pain for Americans, hitting record highs earlier this month as the war between the United States and Israel with Iran entered its seventh month with no prospect of a swift resolution. As oil and fuel exports out of the Persian Gulf remain constrained, U.S. refiners ramped up processing rates to fill as much of the resulting supply gap as possible. Exports of both crude oil and fuels surged, especially to Europe, which lacks sufficient local refining capacity.
The surge in exports also contributed to the fuel price inflation at home - and the recent rush by the federal government to bring prices down. President Trump has repeatedly claimed that once the war is over (which he says will be soon), prices will go back down. However, unlike in the first weeks of the war, claims are not enough to bring prices down, so diesel fuel earlier this month topped $6.50 per gallon before retreating to $6.45 per gallon this week amid talk about a possible diesel export ban.
President Trump has signaled his support for a ban, while Energy Secretary Chris Wright has argued that ultimately, a ban would have the opposite of the intended effect. Analysts agree: if exports of diesel fuel are suspended for 90 days, per the proposal, refiners would first have to stock up their available volumes, and then they would need to reduce their run rates once storage space runs out. The run rate cuts would hit the supply of gasoline, leading to higher prices for that fuel.
The situation, in other words, is complicated with no easy fix available. Cutting excise duties on fuels is a go-to measure that governments deploy in times of fuel price trouble. All European countries already have some version of that in effect to help drivers weather the crisis.
Asian nations have also cut excise duties to cushion the fuel crisis blow. Reuters reports that the federal highway tax burden for broad-use diesel fuel stands at $0.244 per gallon. Red-dyed diesel used for tractors, construction vehicles, forklifts, diesel generators, and heating systems is exempt from these taxes.
In other words, broadening the availability of red-dyed diesel would, in theory, reduce prices by nearly $0.244 per gallon. Not all agree this would make much sense. “I can't think that this would have any impact at all,” GasBuddy’s head of petroleum analysis Patrick De Haan said, as quoted by Reuters.
“It's simply diesel with red dye added that's not taxed. It does nothing to improve supply or impact price.” Fundamentally, the United States is producing more diesel fuel than it is using. At 5.1 million barrels daily, output exceeds an average daily consumption rate of some 3.6 million barrels.
Exports average 1.2 million barrels. However, due to the global nature of the diesel market, a supply squeeze in the Middle East sends a ripple effect across the globe, hitting U.S. diesel prices despite production rates. By Charles Kennedy for Oilprice.com More Top Reads From Oilprice.com LNG Canada to Double Export Capacity After Shell Approves Phase 2 Saudi Arabia Restarts Red Sea Crude Oil Loadings India Looks to Boost Exploration as Hormuz Crisis Threatens Supply Download The Free Oilprice App Today Back to homepage Charles Kennedy Charles is a writer for Oilprice.com More Info Leave a comment EXXON Mobil -0.35 Open 57.81 Trading Vol. 6.96M Previous Vol. 241.7B BUY 57.15 Sell 57.00
