The oil price alert sounded before the midterm elections! The White House is preparing a rare move to use the Defense Production Law to expand refining capacity

The Zhitong Finance App learned that, according to two people familiar with the matter, as the conflict with Iran revealed America's vulnerability in the face of disruptions in global crude oil supply and soaring prices, the White House is considering how to invoke the Defense Production Law to expand America's refining capacity. Considering such an extraordinary move highlights the growing pressure on the Trump administration — Trump needs to show that he can contain the impact of soaring fuel prices on consumers and businesses before the November midterm elections arrive.

People familiar with the matter revealed that the proposal to use the bill was made during Trump's recent meeting with nearly 12 US refiners. At the meeting, White House officials tried to figure out how federal support could most effectively be used to increase production capacity. People familiar with the matter said that in the end, no decisions were made at the meeting, and the relevant dialogue was expected to continue when the participants left.

People familiar with the matter added that refining company executives told officials that federal funding is best used to improve the operating efficiency of existing refineries or expand existing plants rather than fund the construction of a new refinery because the latter is much more expensive and takes years to complete.

Citing the Defense Production Act is seen as a last resort, which has never before been used to increase refining capacity. According to reports, the bill gives Trump broad powers, allocates industrial resources, and provides financial incentives to companies that produce and expand the production of materials recognized as important for national defense. The latest discussions are based on a presidential decision issued in April that authorized the bill to be invoked to support and expand America's oil production, refining, and logistics capabilities.

When asked about the proposal, White House spokesman Taylor Rogers said, “America's refining capacity is critical to ensuring America's continued access to safe, reliable, and affordable energy. Expanding refining capacity is a top priority for the President and his energy team, and they are evaluating specific plans to improve our refining capacity through regulatory reforms, speeding up approval processes, and increasing investment.”

pilot project

A proposed new refinery in Brownsville, Texas has become a pilot project called by Trump to expand US refining capacity. It's unclear whether the project will receive Defense Production Act funding.

America First Refining plans to build a refinery with a daily processing capacity of 168,000 barrels at the Port of Brownsville. When announcing the project in March of this year, Trump said that this is the first new refinery built in the US in nearly 50 years. The project is supported by Reliance Industries of India, which has reached a 20-year purchase agreement to underwrite the refinery's output.

The project is also linked to the Trump family and the current administration. According to reports, Donald Trump Jr. (Donald Trump Jr.) is a passive minority shareholder of America First Refining. Meanwhile, according to a company announcement, Cantor Fitzgerald, founded by US Secretary of Commerce Howard Lutnick, is acting as the company's financial advisor.

Refining production capacity is close to the limit

Although the US is one of the largest refiners in the world, has a huge network of refineries, and can process millions of barrels of crude oil every day, the price of refined oil products is still high. The average price of gasoline across the US surpassed 4 US dollars/gallon on Labor Day (September 7) this year, setting a record high for this holiday. Meanwhile, the latest data from the American Automobile Association (AAA) on Friday showed that the average price of diesel in the US reached 6.0556 US dollars/gallon, breaking 6 US dollars/gallon for the first time in history; in California, the average price of diesel was as high as 7.9827 US dollars/gallon.

American refiners are operating almost at full speed. Over the past ten years, as less profitable refineries have been shut down one after another, US refining capacity has also declined, and refining capacity across the US has become increasingly concentrated in the Gulf Coast region.

According to the latest data, the capacity utilization rate is as high as 98%. This high utilization rate highlights the challenge facing the Trump administration — refiners are close to full production, yet tight global supply and strong demand keep fuel prices high.

In recent weeks, when asked how it plans to respond to the sharp rise in fuel prices caused by the Middle East conflict, the White House has increasingly talked about expanding domestic refining capacity, making this effort not only a long-term buffer measure to deal with disruptions in global supply, but also part of a broader response to affordability issues before the midterm elections.

Furthermore, the Trump administration is also working to increase access to foreign crude oil supplies. The White House said at the beginning of this month that the Venezuelan Provisional Authority has granted 100-year concessions to the North American Blue Energy Partners (NABEP), which is supported by the United States, for a period of 100 years. These oil fields have proven reserves of about 65 billion barrels. NABEP is the second-largest private oil producer in Venezuela.

According to the White House, the company has granted a 35% stake in its parent company to the US War Department's Office of Strategic Capital. As part of efforts to help the US replenish strategic oil reserves, the US government will have the right to buy a guaranteed 20% share of all NABEP's current and future oil field production at production costs. The US government also has “priority purchasing rights” to buy the remaining 80% of NABEP's production, making Washington a priority buyer of its energy reserves. The White House said that eventually millions of barrels of additional Venezuelan crude oil will be processed through US refineries.

US refiners are enjoying multi-billion dollar profits

Against the backdrop of the closure of refineries in the US over the years and the tightening of global fuel supply due to the Middle East war, US refiners are fully operating to meet market demand, making the second quarter one of the most profitable quarters in history.

According to financial reports previously released by Valero Energy (VLO.US), in terms of earnings per share, the company achieved the strongest quarterly performance in history; the company's net profit for the second quarter increased more than fourfold year-on-year, from US$714 million in the same period last year to US$3.7 billion, a record high. PBF Energy (PBF.US) and HF Sinclair (DINO.US) recorded the best profit performance since 2022 and 2023, respectively — HF Sinclair's net profit in the second quarter increased by about four times to reach US$892 million; PBF Energy changed from a loss situation in the same period in 2025 to profit, and net profit increased by more than 1 billion US dollars. The second-quarter profits of Marathon Crude Oil (MPC.US) and Phillips 66 (PSX.US) increased by more than 300% year over year, reaching 5.1 billion US dollars and 3.8 billion US dollars, respectively.

Refinery shutdowns over the years have led to a lack of supply buffers in the fuel market. Today, the war between the US and Iran has disrupted fuel exports to the Middle East, while Ukraine's attack on Russian refineries has also limited gasoline and diesel exports. Together, these supply disruptions have led to a decline in global fuel stocks and a rise in global fuel prices.

While demand remains relatively stable, gasoline and diesel inventories show little sign of recovery, which means that market supply will remain tight and prices will remain high. Although fuel production usually starts to slow in the fall, US refiners say they will continue to chase near historic profit margins.

US oil prices are likely to face another round of soaring

Jeff Currie, a senior commodity strategist at Goldman Sachs for a long time and founder and CEO of Real Macro, warned that as the US energy supply shortage spreads further from refined oil products to the crude oil side, the possibility that US gasoline prices will rise to $5 per gallon before the November midterm elections is “extremely high,” and diesel prices may even soar to $7 to $9 per gallon.

Jeff Currie said that the current energy market is entering a more dangerous phase. Previously, supply was tight, mainly concentrated in the field of refined oil products such as gasoline and diesel, but now it has begun to spread to the crude oil market upstream of the industrial chain. Due to the combination of scarce supply and currency depreciation factors, American consumers may face a new round of energy price shocks. He believes that the crude oil market is sending a signal of further worsening supply constraints, which will eventually be transmitted to terminal fuel prices such as gasoline and diesel.

The US gasoline price breaking through $5 per gallon has important psychological and political significance, especially as the November 3 US midterm elections are approaching and the control of Congress is facing fierce competition between the two parties. Jeff Currie's judgment on the possibility that gasoline prices will break through $5 before the midterm elections is “extremely high.” He pointed out that at present, US refineries can still adjust production by adjusting production and switching production capacity between diesel and gasoline, thereby adjusting according to the supply conditions in different refined oil markets. However, this flexibility is not limitless; as supply pressure continues to build up, refineries may eventually run out of space to cushion market shortages by adjusting product structures.

Meanwhile, the release of the US Strategic Petroleum Reserve (SPR), which previously helped fill the energy supply gap, is currently showing no sign of restarting, which means the market may lose an important supply buffer tool.

Jeff Currie's warning shows that the current energy shock facing the US is not just the rise in oil prices itself. As supply constraints spread from refined oil products to crude oil, if gasoline and diesel prices continue to rise, high energy costs may further increase the burden on consumers, become a more sensitive economic and political issue before the midterm elections, and further exacerbate market concerns that high inflation will force the Federal Reserve to tighten monetary policy.