WTI crude oil net long positions hit a 20-week high as the Trump administration considers invoking the Defense Production Act to expand refining capacity

As oil prices once again exceed $100 per barrel, the U.S. government is considering invoking the Defense Production Act to expand domestic refining capacity, while speculative capital in the crude market continues to intensify bullish bets.

According to Reuters, citing sources familiar with the matter, the Trump administration is studying how to use the Defense Production Act to expand U.S. domestic refining capacity. The related plan was discussed at a recent meeting between Trump and nearly a dozen U.S. refiners, where White House officials asked refinery companies about the most effective ways federal support funds could be used to increase refining capacity.

No final decision has been made yet, and participants expect the relevant discussions to continue. Refinery executives have told the government that if they receive federal funding, it would be more appropriate to use it to improve the efficiency of existing refineries or to expand current facilities, rather than to build new refineries, as the cost of new refineries is extremely high and they take years to become operational.

The surge in U.S. refined product prices has particularly triggered policy pressure. The national average price of diesel in the U.S. has surpassed $6 per gallon for the first time, up nearly 60% since February when the U.S. and Israel launched military actions against Iran; U.S. diesel inventories are also 13% lower than the average for the same period over the past five years. Gasoline prices in the U.S. also remain high.

On Friday, WTI crude fell 2.32%, but prices stayed above $100 per barrel.

Crude Oil Bullish Positions Hit Multi-Month Highs

The latest position data from the U.S. Commodity Futures Trading Commission (CFTC) shows that for the week ending September 8, speculative funds continued to increase their bullish bets on crude oil.

NYMEX WTI crude oil net long positions rose by 19,720 contracts that week to 139,339 contracts, a new 20-week high; combined net long positions in Brent and WTI crude increased by 25,890 contracts to 411,159 contracts, a new 16-week high.

The refined products market also shows a certain bullish tendency. NYMEX gasoline net long positions rose to 92,926 contracts, the highest in nearly nine months. However, NYMEX heating oil/diesel net long positions fell to 16,004 contracts, a four-week low.

The natural gas market remains bearish, with NYMEX natural gas net short positions increasing to 76,518 contracts, the highest in five weeks.

In other words, during the week ending September 8, capital clearly increased its bets on rising crude oil and gasoline, rather than turning bullish on the entire energy sector.

It is noteworthy that the above CFTC position data is as of September 8, whereas WTI only broke through $100 per barrel afterwards. Therefore, the timing suggests that speculative funds increased crude oil long positions ahead of the rally, and the subsequent rise in oil prices occurred after, not as a direct result of the CFTC data.

U.S. Refining Capacity Nearing Its Limit

The Trump administration's consideration of using the DPA to expand refining capacity also reflects a current reality facing the U.S.: even if crude oil supply increases, the U.S. refining sector may not be able to quickly turn more crude into gasoline and diesel.

U.S. refinery operating rates have already reached about 98%, nearly full capacity. Amid strong fuel demand and global refining capacity constrained by Middle East tensions and attacks on Russian refineries, there is limited room for U.S. refiners to increase output.

Over the past decade, U.S. refining capacity has actually declined, as some unprofitable refineries have gradually closed, concentrating existing capacity further along the Gulf Coast. The Trump administration is therefore treating the increase of domestic refining capacity as a long-term solution to easing pressure on fuel prices.

White House spokesperson Taylor Rogers stated that U.S. refining capacity is critical for ensuring energy security and reliable supply; expanding capacity is a priority for Trump and his energy team, and the government is currently evaluating specific actions such as regulatory reform, accelerating approvals, and increasing investment.

DPA May Become the Policy Tool to Expand Refining Capacity

The Defense Production Act is generally regarded as a key tool for the U.S. government to mobilize industrial resources in times of emergency.

In April this year, the Trump administration had already moved to designate U.S. oil production, refining, and logistics as critical to national defense, authorizing the use of the DPA to support capacity expansion. The White House stated at the time that petroleum fuels are vital to the U.S. military, industrial base, and critical infrastructure.

The focus of the current discussions is whether the Trump administration will further use the DPA not just as a tool to ensure energy supply, but to directly support refinery expansion and efficiency upgrades.

However, refiners are not inclined to rely on government funds to build new large-scale refineries. Industry executives prefer federal support to go toward expanding and upgrading existing facilities, as building new refineries requires massive investment and long lead times, making it difficult to address the current tight fuel supply in the short term.

Crude Oil, Refined Products, and Inflation Become Key Policy Drivers

From a market perspective, the current challenge for the U.S. government is not just rising crude oil prices.

Middle East conflicts have disrupted global crude and refined product supplies. After international oil prices broke through $100 per barrel, terminal fuel prices such as diesel and gasoline also surged, driving up transportation, agricultural, and industrial costs, and re-intensifying inflationary pressure in the U.S.

Rising oil prices have already begun affecting U.S. financial markets, with investors worried that higher energy prices could push up inflation and impact the Federal Reserve's future policy path.

The International Energy Agency (IEA) has also warned that due to Middle East unrest and supply interruptions in the Gulf, the global oil supply reduction could further widen to 5.7 million barrels per day by 2026, about 6% of supply; Saudi crude production in August dropped to around 6 million barrels per day, the lowest in more than three decades.

For the U.S. government, expanding refining capacity can increase medium- and long-term supplies of refined products, but since new capacity takes years to build, whether prices for gasoline and diesel can be lowered in the short term still depends on the recovery of Middle East supply, global refining capacity, and the actual production increase at existing U.S. refineries.