Washington allocates up to $150 million to expand oil refining as crude rises

Key Facts

The U.S. Department of Energy announced plans on October 22 to provide up to $150 million in funding to expand domestic oil production, storage and logistics at refineries, in a move the administration said was aimed at strengthening the sector’s capabilities. The department expects the funding to increase U.S. refinery output by millions of gallons a day and support production of gasoline, diesel, jet fuel and other petroleum products. The project selection process is still underway, however, and the department has yet to announce recipients or detailed funding terms. The announcement was part of a broader move by the administration on October 22, when President Donald Trump designated oil production, refining and related logistics as essential to national defense. The White House said funding constraints, long project lead times, permitting and infrastructure bottlenecks, and supply-chain constraints were preventing the sector from supplying the energy required quickly enough without federal intervention.

In a separate measure, the Energy Department on October 23 authorized an emergency exchange of up to 400,000 barrels of crude oil from the Strategic Petroleum Reserve for the benefit of the Phillips 66 refinery in Lake Charles. The measure requires the oil to be returned to the reserve along with an additional quantity of barrels as a premium, the department said. The arrangement differs from the refinery funding announced earlier: it is an exchange of crude from the reserve, while projects for federal funding are still being selected. The administration announced on October 5 that it would defer payment of some diesel taxes and grant a sanctions exemption to eligible taxpayers for fuel used through the end of the year. These steps show the use of financing, tax and reserve tools in its efforts related to fuel supplies, without in themselves proving that pump prices have fallen.

The latest U.S. Energy Information Administration data show a mixed picture for U.S. inventories in the week ended October 16. Commercial crude inventories, excluding the Strategic Petroleum Reserve, fell by 3.1 million barrels to 412.5 million barrels, compared with 422.8 million in the same period a year earlier. Gasoline inventories also fell by 3.0 million barrels to 205.3 million, 11.4 million barrels below their year-earlier level. By contrast, distillate fuel inventories, which include diesel, rose by 1.7 million barrels to 104.3 million, but remained 11.3 million below their year-earlier level. On the supply side, U.S. crude production was 13.269 million barrels a day, down 410,000 barrels a day from the previous week.

Refinery crude inputs were 16.649 million barrels a day in the week ended October 16, up 919,000 barrels a day from the same period a year earlier. The annual increase came alongside a decline in gasoline inventories, while diesel inventories rose week on week; these differing indicators do not point to a single trend across all fuel types. The average retail price of gasoline in September was $4.35 a gallon and diesel was $6.29, according to the EIA’s October outlook. The agency attributed higher prices to rising crude prices and wider refining margins. The average U.S. price of regular gasoline was also $4.284 a gallon on October 19, down 4.7 cents from the previous week but $1.265 above its year-earlier level.

Oil markets rose ahead of the reserve exchange announcement on October 23, with Brent crude gaining 3.1% to top $116 a barrel, its highest level since June 2022, according to the Associated Press. EL7 data show Brent futures closed at 109.55 on October 19 and then at 116.72 on October 23, while West Texas Intermediate futures rose from 97.15 on October 21 to 103.27 on October 23. The agency reported that the oil rally weighed on U.S. stocks that day. These moves preceded the funding and exchange announcements, so they do not reflect a market response to them. Available data do not establish that the administration’s measures lowered fuel prices or changed crude’s direction.

In its October outlook, the EIA projected diesel prices would remain above $6 a gallon during the month and retail gasoline prices would stay near September’s level before gradually declining. The agency also expected gasoline margins to remain above their seasonal averages through early 2027. These projections were issued before the selection of the funding projects announced by the Energy Department was complete. The Federal Reserve is scheduled to hold its Federal Open Market Committee meeting on October 27 and 28, with a news conference on October 28. The meeting is part of the broader economic context for energy market moves, but the calendar does not determine the meeting’s outcome or interest-rate decision.