Trump says new fuel supply push will lower prices. Will it work?

President Trump announced on Thursday that his administration will use the Defense Production Act to allocate $150 million to boost U.S. gasoline and diesel production. The Defense Production Act, a wartime-era law, permits the president to stimulate the production of essential materials and goods through various means, including loans and purchase commitments.

According to the Department of Energy, the funding will increase U.S. refining output by millions of gallons per day and reduce fuel prices for Americans, who have been paying over $4 a gallon on average for gas over the past three months. However, the administration's announcement comes amid growing pessimism among Americans about the U.S. economy, with a majority expressing concern over affordability.

Crude oil prices have risen, with Brent crude reaching $116 a barrel, a 2.6% increase, and West Texas Intermediate at around $103 a barrel, a 3% increase. The national average for a gallon of gasoline was $4.29 on Friday, while diesel averaged $6.32, both representing a 40% and 74% jump compared to a year earlier, respectively. Experts doubt the DPA's effectiveness in lowering fuel prices, with Patrick De Haan, a petroleum expert at GasBuddy, stating that the U.S. already produces more fuel than it needs.

Oil prices, however, are determined on the global market, where conflicts in Iran and Ukraine have disrupted shipments, driving prices higher.

The U.S. produces 5.3 million barrels of distillate fuel oil (including diesel) daily but consumes only 3.6 million barrels, while it produces 9.5 million barrels of gasoline daily, surpassing the 8.9 million consumed domestically. The U.S. also exports about 1.4 million barrels of diesel daily. Adding extra capacity poses a challenge due to the constraints of U.S. refineries, as refiners are currently operating at full capacity to meet global demand and supply the American economy despite disruptions and shortages in other regions.

The American Fuel & Petrochemical Manufacturers, a trade association representing refiners, acknowledged the administration's focus on refineries but noted that refineries are already running at maximum capacity, and bringing additional capacity online would take months and calendar quarters, with no short-term benefits.