With U.S. diesel prices still elevated, the Trump administration is preparing to roll out fresh measures to bring them down, seen as the latest push to lower the cost of this key fuel ahead of November's midterm elections.

Citing people familiar with the matter, Bloomberg reported on Monday, October 5, U.S. Eastern Time, that the Trump administration plans to relax restrictions on the use of "dyed red diesel," with an announcement potentially coming as soon as Monday. The report said the specifics have not been fully finalized, but the move would allow tax-exempt red diesel to be used more broadly, including possibly on highway vehicles.

Red diesel is mainly used for off-road equipment such as farm machinery. Because it is exempt from the federal highway fuel tax, it typically costs less than standard on-road diesel. If the government eases restrictions on its use, diesel users such as truck drivers could lower costs by using this tax-free fuel.

Diesel prices remain high, Trump steps up efforts to ease fuel costs

While U.S. diesel prices have retreated from record highs recently, they remain well above levels seen at the start of the year. Data from AAA shows that as of last Sunday, the average U.S. retail diesel price stood at $6.32 per gallon, below the record high of $6.53 set last month but still more than 60% above the $3.76 recorded on February 28.

The surge in diesel prices is putting pressure on farmers, truck drivers and other heavy diesel users, especially as the U.S. enters its autumn harvest season. Diesel is also widely used in road transport, agricultural machinery, shipping, and heating and power supply in some rural areas, and higher prices are feeding further into transport and consumer goods costs.

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

Unlike releasing strategic reserves, however, easing red diesel restrictions mainly reduces the tax burden for certain users and does not directly increase diesel supply in the market. Analysts had previously warned that the measure would have limited effect in resolving the current tightness in the diesel market.

G7 just announced a reserve release, Trump abandons diesel export ban

This action is also part of a series of recent measures by the Trump administration to push down diesel costs.

Last Friday, the G7 and its partners announced the coordinated release of up to 100 million barrels of emergency oil and diesel reserves through the IEA. The action started immediately and will be implemented over four months, with a large front-loaded release of diesel in the first 20 days.

The decision followed sustained pressure from the Trump administration. Trump said last Friday that the U.S. would no longer impose a diesel export ban, saying Europe has ample diesel and the U.S. will also increase supply.

Previously, the Trump administration had seriously considered restricting U.S. diesel exports, and some Republican lawmakers from agricultural states had also called for export restrictions to boost domestic supply and push fuel prices lower. But the energy industry warned that while an export ban could bring short-term supply relief, it could lead U.S. refiners to cut production and ultimately drive domestic fuel costs higher.

After the G7 announced the reserve release, the Trump administration turned to other ways to lower domestic diesel costs. Easing red diesel restrictions is one of the alternatives now on the table.

Whether "red diesel" can truly lower prices remains in doubt

Red diesel is basically the same fuel as standard on-road diesel. The main difference is that a red dye is added to identify its tax-exempt, off-road use. If its use is broadened, some users who previously had to pay the highway fuel tax could switch to the tax-free fuel.

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

Citing analysts, Reuters said that expanding the use of red diesel cannot change the supply fundamentals of the diesel market. Refiners will still sell diesel at market prices, so the ultimate price relief passed on to consumers will still depend on the specific policy design and how retailers pass on the tax benefits.

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

The goal of lowering diesel prices before the midterm elections is clear, but whether the two measures can sustainably change the supply-demand dynamics of the U.S. diesel market remains to be seen.