G7 release of strategic oil reserves should reduce fuel prices

Many economic experts believe that the decision of the seven largest industrialized countries (G7) to support the market from strategic oil reserves in response to the extremely high oil and fuel prices was correct.

Jochen Stanzl, chief market analyst at Consorsbank, says this move will have a very direct impact. It is reminiscent of spring, when 400 million barrels of oil were released from strategic reserves.

"That really led to prices at the gas station becoming cheaper because it led to the supply situation easing up." According to Stanzl's assessment, something similar can be expected again now.

Is the price of diesel falling?

In the next four months, up to 100 million barrels of crude oil and diesel, or the diesel precursor gas oil, are to be released. Two reasons play a role here.

For one thing, more supply on the market usually causes prices to fall. This is likely to be particularly evident with diesel fuel, says Jochen Stanzl.

While the restrictions caused by the blockade of the Strait of Hormuz for other oil products have now been alleviated by establishing alternative routes, the transport of diesel is still severely affected, says Stanzl.

Crude oil transport from the Middle East, for example, is now almost back to pre-war levels, explains the raw materials expert, while only a little more than half of the amount of diesel transported before the attack on Iran. “There are actually bottlenecks.”

These could be alleviated by the recent G7 approval. Apparently this will primarily include diesel or the diesel precursor gas oil, as well as crude oil and other mineral oil products.

Reserves cheaper than current deliveries

On the other hand, the following point is likely to have a price-lowering effect: countries often store their strategic reserves locally. In contrast to current deliveries, they save the costs of transport from the Middle East.

Because of the risks of war, record prices are being charged, says Stanzl. On top of a crude oil price of around $100 per barrel, an additional $30 to $35 would have to be added for transport from the Persian Gulf to China, and seven to ten dollars to Europe, says Stanzl.

Replenishing the reserves is likely to take years

In order for the price reduction to be more than a drop in the ocean, the situation in the Persian Gulf must normalize, say experts. If this does not succeed, the question arises as to how often the card of releasing strategic reserves can be played.

“Such measures can only alleviate the shortage somewhat in the future,” says Ulrich Kater, chief economist at Deka-Bank. "But if the shortage persists, it is foreseeable that the reserves will not be sufficient at some point."

Meanwhile, the geopolitical situation remains tense. The head of the world's largest oil company Saudi Aramco, Amin Nasser, has warned that the tension in the markets for crude oil and fuels could last one to two years. That's how long it could take to replenish the reserves of states and companies.