Fueling the Inflation Fire: The Hidden Reach of Rising Diesel Prices

MIKE BARNES 0:21

Welcome to America’s Gold Authority Podcast. My name is Mike Barnes. Diesel prices are at an all-time high. Most of us use unleaded, I know, but trickle-down economics, it’s a situation that is affecting all of us. Let’s bring in our expert, Philip Diehl, 35th Director of the United States Mint, President of U.S. Money Reserve. And Philip, I don’t think I’m exaggerating when I say this is a situation that is affecting everyone in a big, big way. Sure it is.

PHILIP N. DIEHL 0:47

It rattles through the economy everywhere. And so that’s because uh not only do uh consumers use uh diesel, of course, in pickup trucks and uh out in the farm fields and uh in trucks carrying uh uh goods all across the country, but uh it’s used in uh construction equipment and uh in uh manufacturing all through the economy, and therefore it affects the production of goods and services that then trickle through products that come to consumers indirectly. And it’s uh it’s really impossible to escape the effects of diesel prices uh in all our goods and services. Uh, and therefore, we’re seeing these impacts not only immediately in the economy, but later weeks and months down the road.

MIKE BARNES 1:45

The governor of the state of Texas, your old home state, is calling this a statewide disaster, doing whatever he can to cut costs. But I don’t know if there’s anything that can be done besides stopping the war in Iran.

PHILIP N. DIEHL 1:58

Well, that’s exactly right, and that’s the source of the problem. And we see this in uh in a number of ways. There’s just no doubt about it. And and there’s been some talk about the possibility of uh of uh closing off the export of diesel. Uh and a substantial amount of diesel is exported out of the United States, and there’s tremendous uh political pressure not to do this, because uh any diesel that is exported from the United States is diesel that is not available in domestic markets, and that could lower the price of diesel uh that is available to consumers in the United States. But if we were to do that, it would be too late now to have an impact on prices in the market. I mean, after all, the reason why we would do that, that this administration would do that, is to have an impact before the midterm elections. And now we are what, like six weeks away from the election? Uh less than that, really. I guess it’s like five weeks. And there’s just no way that it would have a substantial impact. The other thing that would happen is that uh there’s no way of preventing the refiners from then uh moving up their planned turnarounds of the refineries that they typically do in the fall. And what they mean by the turnaround is that they typically shut down the refineries to prepare for the maintenance that they do every fall, uh, that they have to do in order to make sure that they are prepared for the coming year’s uh work and also to prepare for the winter blends that they by law have to produce. And they have delayed a lot of that work uh in order to keep up production as much as they can. And so they would simply move up that production, uh, that those kinds of turnarounds, and then reduce their production of diesel. So it’s a situation that where the administration is in a can’t-win situation. And so I think that uh any sort of effort like that would would backfire on the administration. So there’s a real irony in this, and we’ll get into this later, because the administration has been over backwards to make this a win-win situation for the refiners and the oil producers. And now they’re in a situation where they are desperate to bring down uh uh diesel prices in particular because it’s hitting the farmers and the and the truck drivers and the trucking companies who are the backbone of the support of the administration here, right before the midterms, and they’re not uh able to do it.

MIKE BARNES 5:11

I think it’s interesting that we always talk about crude oil, and the price is over $100 a barrel, and how’s the price now, and how is it affecting each and every one of us? This is the first time in a long time I’ve heard people worrying about diesel.

PHILIP N. DIEHL 5:25

Yes, and um and I think that we we ought to turn to a graph here, the first graph I want to talk about, and uh talk about some of the dynamics that have happened that have been really kind of surprising, uh, and explain what has happened and why it has become such a big political issue here just in the last several weeks. The double peak of 2026, and it focuses on the West Texas Intermediate Crude, that’s the WTI crude versus the U.S. diesel price. In the blue line, we’re looking at the price of the West Texas crude, and in the red line, we’re looking at the diesel price. And what we’ve done here is we’ve normalized the prices. In other words, we’ve started them both out at zero so that we see them move in tandem and they’re increasing at the same percentage rate. And we see them at the point before the war begins, and we see them leap at the beginning of the war, and they leap together to reach a spring peak rising about 60%. And we see West Texas Intermediate reaching about $104 a barrel, and diesel reaching $5.64. And that peak is reached very rapidly by May, about a month into the war. And then there’s a very rapid drop-off, first in oil prices, followed shortly by diesel. And it falls off fairly closely to where they started off by early July. And this represents pretty much what the administration expected. They expected a short war. It has run a little longer than what they expected, but uh they expected this price to fall off in this period of time. And you’ll recall by mid-June a peace agreement had been reached by uh Iran and the United States and by the administration. Oil prices had fallen off, diesel prices had fallen off by this point, and everything seemed like it was sort of maybe going back to normal. And then by early July, everything fell apart. We saw oil prices and diesel prices begin to rise again as hostilities began to increase. Well, at this point, diesel prices separated from oil prices, and this is where we need to drill down a little bit into the industry. And the reason is because nobody consumes crude oil, crude oil. It has to be refined, it has to be refined into several products. One is gasoline, which most of us use, diesel, jet fuel, home heating oil and the like, propane, and all the other distillants. So um, and it ended up that diesel became uh the product that had the biggest gap between supply and demand. There was more of a gap uh between diesel demand and supply than there was with the other products. And you see that really developing in this graph with that fall peak of $6.53. Now, your mileage varied depending on where you were in the country. This is an average. Here, the Pacific Northwest, I saw it just the other day at over $7 a gallon. And in California, it was even higher than that. In Texas, I saw it the other day under $5.50. Now, the shaded part of this graph shows uh the projections of where the prices are headed through the fourth quarter, through the end of this year. I think this is overly optimistic. In a little bit, I’ll explain why. There are several dynamics that are not reflected in these projections. But you see the optimism reflected in these projections about where oil prices are expected to fall off very rapidly in this graph with the blue line. But diesel prices are expected to fall very slowly because of how much longer it’s going to take before the refineries catch up with their production of diesel. I don’t think the diesel production is going to develop this fast, and I don’t think other distillates are going to catch up as fast either, because of some of the dynamics that I think are going to happen. So I think those prices are all going to stay up longer. This is the dynamics of what have been happening with prices and the role that refineries have been playing in driving prices higher than what people had been expecting. And during this period of time, the refineries have been making money hand over fist because they are playing this middleman role.

MIKE BARNES 11:11

A lot of people don’t understand that these prices are so high right now. 10 years ago, about $2.30 a gallon. 20 years ago, about $2.50 a gallon. 30 years ago, less than $1.50 a gallon. And those higher prices affecting us in a big, big way. People are worried about are we going to run out of oil? Are we going to run out of diesel as this war continues?

PHILIP N. DIEHL 11:32

One of the ways in which we’ve been protecting ourselves, we and uh other major uh consumers of energy, oil in particular, all over the world. And we’ve uh built these so-called strategic petroleum reserves all over the world among the consuming nations, is by building these reserves since the oil embargoes of the 1970s and 1980s. And we began building ours in the early 1980s and have stockpiled as much as like 780 million barrels of oil down in salt caverns down in Louisiana and Texas. And really, I remember back in the days when I was beginning my career in oil and gas issues. Uh, and I have been a native Texan and coming up working in uh oil and gas, paying my way through college in the industry, and then studying the industry and and working for Senator Lloyd Benson from Texas and Washington, D.C., and being his representative to the industry. I’ve been around the industry for years. And so I’ve studied these uh these issues and represented the senator and as Secretary of Treasury with the industry. I’ve studied these industries over the over uh decades. And so, and one thing that’s really important to understand about what the purpose of the strategic petroleum reserve is, is to protect the country in the case of strategic emergencies. Now, strategic means in the case of national emergencies in which the country’s defense is on the line, when the country is at threat, when its national security is at threat in a war, it’s not designed to protect a regime, an administration from political threats, from uh from a midterm political disaster, or from its um political uh opponents in an election season. That’s not the purpose of a uh petroleum reserve. And it has been used in the past by both Republican and Democratic administrations in that way. It’s different this time, and the reason why it’s different this time, in the past, when it’s been used, it’s been used uh politically when there’s a lot more oil in the reserve. This time I’m going to show you a chart that shows how it’s been drained this time for political purposes. There is no more oil in the reserve. It has been drained for political purposes. This graph shows the oil reserves at the beginning of the war at 360 million barrels. Now that is about half of what the um, a little bit less than half of the total capacity of the reserves, which was about 760, 780 million barrels. So already it was about half empty. And after the war began, it dropped, as planned, to about 340 million barrels. And it sat at that level through June, and that was the expected level where it would remain, because the war was expected to last a short period of time, and that was what the plan was. And it was expected to lay at that, sit at that level, and then be refilled. But because the war continued to rage on, then when the administration reached August of 26 and the war continued, it discovered that it was going to need to continue to draw from the reserve. So the plan changed, and you see how abruptly, even more rapidly, it drew on the reserve than it did at the beginning of the war. And it drew right down to this red line. Well, that red line you see at 300 million barrels. That was where the emergency reserve was supposed to stop. That was the level at which Congress had set the minimum amount that was supposed to remain in the reserve in order to prevent any damage to the reserve. It was set at the emergency level in that if we face national emergency, then it was okay. If uh if it was a real emergency, then we could risk damaging, permanently damaging the reserves, if we drew the uh oil out of the reserve. If the the national, if the nation really faced an emergency, then we could risk damaging the reserves permanently and go ahead and draw the oil out. But to protect an administration from a midterm disaster, no. No. But as you see, we went below that 300 million level. We went to 284 million barrels, and then we stopped until yesterday. And this was after I produced this graph. And yes, last night I saw a headline that the administration had approved the removal of another 40 million barrels. So this will take us to 244 million barrels. If and this hasn’t happened yet, but the administration has approved uh selling an additional two 40 million, so that would take us to 244 million and risk permanently damaging the uh the reserves, and they’re doing this uh five weeks before the midterm elections. Now, why would this damage the reserves? The reserves sit in salt uh caverns, and the way they uh and the the reserves were originally designed so that the uh so that the oil was pumped into these massive caverns and would sit there, and water would be pumped in underneath the oil and be pushed up, and then the uh and would be pushed up and drawn out, and that that would happen only once or twice, and instead what has happened is that that has happened multiple times, and so the salt around those that oil and water has been moved up and down, and that has corroded the salt that has contained that oil and water, and as a result, as that oil has dropped down, down to this minimum 300 million barrels, and now down to 250 below 250 million barrels, that cavern has begun to uh loosen up. And that’s the risk of it collapsing. And also the pumping equipment has begun to erode. And so that is the risk that’s being run that the entire system of that um of the strategic petroleum reserve will be lost. Well, this sounds familiar because it’s sort of like what’s happened with the defense missiles in the Middle East, that we have expended for short-term reasons. We have expended an enormous amount, like 70 to 80 percent of our primary defense missile systems, the FAAD and the Patriot missile systems in the Middle East that we depend on to protect our missile systems and our troops and our allies in Europe and uh and in Taiwan and in South Korea and Japan uh to protect our allies in the Middle East and our troops in the Middle East. And it’ll take us five years before we can replace those missiles on a war of choice, and likewise we are threatening our oil supplies, our strategic oil supplies for a war of choice in the Middle East. It’s exactly the same thing. And in this case, we’re doing it for our domestic political purposes, and this is a story that has not been told. You don’t see this story anywhere in American newspapers today because it’s being blown out. There’s no coverage of it because there’s it’s a level of detail and expertise that uh really doesn’t exist much in American media, and uh there are so many other stories to be told.

MIKE BARNES 22:00

This kind of gives us a little bit of an illusion about the supply, and I don’t think anyone really knows, other than you, what we’re really up against right now.

PHILIP N. DIEHL 22:08

Yes, that’s exactly right. We’re walking through so many graveyards, whistling, not even knowing that the monsters are out of the grave. Bill Gates, just in the last week or so, has said, you know, I thought uh I thought that AI had more potential to help humanity than it did to harm humanity. And he is now saying that that AI is a greater threat to humanity than nuclear weapons. That is how dramatically the assessment of AI has turned. People need to wake up when somebody like Bill Gates says that. Up to now we’ve really been talking about um you know the reality for Americans, but now I want to s you know step back and talk about the reality, the bigger reality to uh to us and our allies in Europe and Japan. Because oil is a um is a worldwide product, and what affects us and what affects the world, it affects all of us together. We all live in the in one market for oil. And what affects the oil market affects the gold market. Oil, gold, interest rates, bonds, they are all in the same market. They move together. And you need to understand them all to understand any of them. I’m in the gold market, but uh when I I need to teach people about oil so that they understand something about gold too, because I will refer to oil when I talk about gold. So that’s why I’m drilling down into gold into oil right now. So in this next graph, the IEA is the International Energy Administration. This is an international organization that is Western focused, so it covers the European nations, including the UK, it includes the US, Japan, and South Korea. So when I talk about these nations and the IEA, I’m talking about all of those nations. And when I talk about their supply and their policy, I’m talking about all of those nations. And the IEA likes to talk about their energy security and they talk about all of the oil they have and how, you know, how comfortable everybody should be because of these enormous supplies. And I’m gonna blow that out of the water here. No, you should not be comfortable when they tell you about how much oil they have. Any more than you should feel comfortable when the Department of Energy tells you they have 300 million barrels or now 244 million barrels of oil in the Strategic Petroleum Reserve. Look over here on the left, and you see that they claim that they have 1.2 million barrels of oil in their reserves. And you see that as the black line that’s above the green shaded area. That’s what they claimed on March 2026 at the beginning of the war. And it recedes slowly down to the far right in late September. That 10-day buffer in the green zone had declined to only 197 million barrels left. So it’s only a 10-day buffer that they had above that red line. And that red line represents their mandated 90-day buffer for all of those nations that I had mentioned: Japan, South Korea, and the United States. In an international emergency, they had 90 days that they claimed. In addition to that, they only had not 10 days remaining buffer, which isn’t very much, as of September. Included in that 90-day buffer is what they call the USSPR 3300 million barrel dead volume. And that’s exactly right. That’s a dead volume. That’s the uh 300 million barrels that we were talking about that really can’t be drawn on. The United States is, you know, can’t really use that without destroying its uh its reserve capacity. And that uh and they probably can’t use can’t even acquire much of that. Uh much of it just couldn’t be used. Their reserve capacity is far smaller than the 90 days. And the reality is that a lot of Europe’s supply comes from the United States, is that exported supply that the United States provides. The U.S., as we were talking about earlier on, the U.S. exports a lot of its oil to Europe. And in the event of an emergency, you, especially this administration, other administrations that are less America first, would make an effort to continue to export uh oil to its European allies. But I think this administration would probably cut off oil supplies very quickly and keep it to the United States as long as it could. And um, and in that case, European supplies would uh be uh cut off, would be shrunk much faster. And so the reality is because of the shortage of missiles, defensive missile supplies and other kinds of defensive uh armaments that are available to us today, our ability to uh to contain military aggression by either Russia or China in Europe or in Asia is much weakened from what it was before the Iran War, and that makes it much more likely that we would face aggression, and it makes it much more difficult for us to respond to it, and it makes us much more vulnerable because of our uh weakened state in terms of oil and energy vulnerability.

MIKE BARNES 29:27

Philip, you pointed out it’s a problem with no quick fix. How long are we going to have to worry about this?

PHILIP N. DIEHL 29:32

I think we have several years to worry about it. Uh, in terms of replacing armaments, I think we probably have three to five years uh before we’re able to replace the armaments that we’ve expended in the Middle East. That’s the current consensus coming out of the military industrial complex, the analysis community. The assessment that is coming out of the oil and gas industry is that this is probably going to take three years, maybe more, to refill the uh strategic petroleum reserve. The thing to remember is that while we are refilling our strategic petroleum reserves, all of these other Western nations, plus China, is going to be refilling their strategic petroleum reserves. This is one of the reasons why I don’t believe oil prices are going to be declining. Secretary of Treasury only a few weeks ago talked about oil prices falling to $30 to $40 a gallon. I mean, give me a break. Really? Seriously? These oil companies are going to have to be replacing under the terms of the agreement with the uh with the administration, they’re gonna have to be replacing all of the oil that they’ve taken out of the reserves, plus 25% more over the course of the next two years. They’re gonna have to replace, be buying about 250 million barrels of oil to replace into the petroleum reserves, competing for the rest of it, with the rest of us and the rest of the world uh for that oil. That’s gonna keep prices up. And you and I are gonna be paying for uh for in competition for that oil. So no, prices, prices will come down some, but it’s gonna be a long time and it’s gonna be slow. And that won’t be until the war’s over, whenever that comes.

MIKE BARNES 31:46

Philip, you said you had information that would blow us out of the water and you come through again. Thanks so much for joining us today. Thank you, Mike. Trickle-down economics have been around for a while. You might remember it from the Ronald Reagan presidency, but this is a great example that a shortage of something like diesel fuel can affect us all one way or another. It sounds like it may continue for the near and somewhat distant future. That’s all the time we have for today’s episode. On behalf of all of us here in the U.S. Money Reserve Studios, thank you so much for tuning in. If you have any questions or you want to learn more about today’s episode, you can call the number in our episode description and speak with one of our friendly account executives. They’re going to be more than happy to answer any questions you may have about precious metals and the strategic role they can play in achieving a secure and comfortable financial future. I’m Mike Barnes. We will see you next time on America’s Gold Authority Podcast.