President Donald Trump said Thursday that he would invoke the Defense Production Act to increase domestic gas and diesel production, as the White House looks to ease consumer costs at the gas pump.1,2,5
The government would spend $150 million toward boosting domestic gas and diesel production, The Hill reported, and the announcement was made in a presidential memorandum earlier on Thursday. The Washington Examiner's headline described the move as an effort to boost US fuel refining capacity and placed the announcement at an Iowa rally, while The Washington Times described the act as Cold War-era and said it would expand oil production. The available reporting does not describe how the $150 million would be allocated or set out the memorandum's full terms.1,2,5
The announcement comes as fuel costs remain a central concern for voters. According to figures from AAA cited in the Guardian's reporting, the national average for gasoline was $4.29 a gallon, more than $1.25 higher than a year earlier, while diesel was $6.30 a gallon, up nearly 75 percent. Al Jazeera, also citing AAA, put the average diesel price at $6.31 a gallon, down from $6.51 a month earlier. The Guardian reported that prices had eased marginally from a month ago but remained substantially higher than last year, while Al Jazeera said diesel prices were on the downturn.3,4
The cost at the pump is being felt by individual drivers, as one Ohio resident described. In Perrysburg, Ohio, Toledo resident Sharie Smith, 41, was airing up her car's tires at a Speedway when she described the effect on her family. "It's affecting my budget," she said. "You got to take away certain things, you got to take away from your kids, like extracurricular activities." Smith said she used to fill her gray Chevy Malibu for $30 to $40 every 10 days, but that it now costs $50 to $60.3
Trump had announced several diesel measures earlier this month, including promoting greater use of red-dye diesel, temporarily lifting sanctions on Russian diesel imports, and a one-time, $8 billion diesel-fuel subsidy for farmers to help with the harvest. Trump posted on his social media site: "Diesel prices for Americans and, indeed, the world, will be COMING DOWN, IN RECORD NUMBERS, AND FAST! Lower prices for Americans, especially our Great Farmers, Ranchers, and Truckers, is my greatest priority."3
Under the Russia arrangement, the Guardian reported that the US can import 2.24 million barrels of Russian diesel, with more to follow. Al Jazeera reported that Trump had said Moscow would export 300,000 tonnes, or 2.25 million barrels, followed by 500,000 tonnes in November and 1 million tonnes "immediately thereafter." Russia's Deputy Prime Minister Alexander Novak told reporters on Wednesday that Russia would send its first tanker of diesel fuel to the United States on Thursday, carrying 40,000 tonnes. He did not name the US port where the fuel would be delivered.3,4
Russia lifted its ban on diesel exports on October 9, a restriction Moscow had put in place to address shortages after Ukrainian-led drone strikes hindered production capacity. Ukraine's Ministry of Defence said earlier this month that drone strikes had knocked out at least half of Russia's oil refining capacity. Novak told the RIA Novosti news agency: "Additional shipments will follow, of course. There were agreements reached between the two leaders. We will meet the United States' needs, to the extent of our capabilities." US special envoy Steve Witkoff, who has been meeting Russian President Vladimir Putin for talks in St Petersburg, said: "We are preparing deliveries of several vessels, the tankers, right now. They will go one after another. The financial component should be provided." Witkoff added that Russia could supply fertilisers in "large quantities" to the US market.4
Energy analysts quoted by the Guardian were skeptical that the measures would bring quick relief. Ed Hirs, an energy fellow at the University of Houston, said the moves would have no impact: "Zero. No elaboration needed," he said. Hirs also said the Russia deal was not for new supply, arguing that Russia would otherwise have sold the diesel at a discount. "It was going someplace. It was going someplace at a discount. And now what Trump has done is, rather than have Russia sell it at a discount, they're selling it for full value. He's given them a huge windfall," Hirs said. Andrew Critchlow, head of energy news for Dow Jones Energy, said the initial 2.24 million barrels amounted to just 14 hours of US diesel demand, while the global diesel market uses nearly 30 million barrels a day.3
The White House has described its recent executive order allowing greater use of red-dye diesel as a cost-saving measure for farmers and truckers. Red-dye diesel is exempt from federal excise taxes because it is intended for farmers and off-road machinery, and it is stained red to distinguish it from regular diesel. The White House said the 24.4 cents per gallon discount would save those drivers about $60 on a 250-gallon fill-up. Hirs said the change would give farmers more competition for fuel, which he said would raise their prices.3
Rob Thummel, senior portfolio manager at Tortoise Capital, said diesel is critical to the last-mile delivery of most consumer goods, so everyone feels the cost. Energy prices across the board are higher because of the US war on Iran, which closed the Strait of Hormuz, through which much of the world's crude oil flows. Thummel said producing more diesel is difficult because Middle East refineries were damaged early in the conflict, and Chinese refiners cannot get enough oil to produce extra fuel for world markets. Recent Ukrainian drone attacks on Russian refiners have further cut global supplies. US refineries have access to domestic oil but are running at maximum capacity, he said.3
Prices could rise as energy demand grows in the winter heating months, especially in places that use heating oil, experts said. Jay Hatfield, chief investment officer of the real-asset investment firm InfraCap, said energy prices are usually lower at this time of year, but that prices are already high despite typically lower seasonal demand. Hatfield said the risk of higher prices would increase if fighting in the Middle East escalates, pointing to a pickup in Houthi attacks on Saudi Arabia. The experts said the only moves that would lower energy costs were opening the Strait of Hormuz to get more oil flowing and negotiating a peace accord between Russia and Ukraine, because the two conflicts are interlinked with energy markets.3
Critchlow said many countries have depleted strategic stocks and few have released reserves, so it might not take much to push prices up. He said that if the conflicts were resolved, the energy situation could be drastically different two years from now, with the world oversupplied with fossil-fuel energy. For now, he said: "I think that we are in a very fragile position now, marketwise."3
