Towards a release of strategic oil stocks by the G7 to curb prices

Towards a lull in prices at the pump? This Friday, Emmanuel Macron announced that the G7 countries had agreed to release, during a videoconference, “up to 100 million barrels” of “diesel and crude oil”, “within four months”. And this, in order to “lower the prices” of fuels, according to the French president.

“We decided to release strategic stocks of diesel and crude oil under the coordination of the International Energy Agency (...) to be able to release up to 100 million barrels within four months,” declared the French president after a meeting of G7 presidents and heads of government. “We noted that there would be no limitation or ban on exports between the members of the G7,” he also specified, stressing that Donald Trump, who had threatened to reduce American gas production, had also been “very clear on this point”. At the same time, the American president affirmed that “Europe had just agreed to put on the market a massive quantity of its abundantly stored diesel”, in a message on his Truth Social network. “The process will begin immediately,” assured the American president.

Lull in oil prices

The meeting scheduled for this Friday by videoconference of the G7 was to try to respond to the surge in fuel prices. It had a positive effect on oil prices, which fell today, with the market anticipating a release of European diesel reserves under pressure from the United States. Around 1:55 p.m. GMT (3:55 p.m. in Paris), the price of a barrel of Brent from the North Sea, for delivery in December, lost 1.98% to $100.28. Its American equivalent, West Texas Intermediate, for delivery in November, fell 2.93% to $90.15, after falling more than 5% to $88.06.

To relieve the world market, the American government is pressing Europe to draw on its emergency stocks of diesel, and is even threatening to ban its fuel exports to the EU in the event of refusal. The deadline for mid-term legislative elections at the beginning of November increases pressure on the Trump administration to lower the prices of this fuel, widely used in the agricultural sector and the transport of goods by trucks. A ban on exports by Washington could indeed reduce domestic prices, but it would cause diesel prices to jump for importing countries, and could have negative repercussions on other refined products in the United States in a few weeks. For the White House, the alternative is for EU countries to draw on their diesel reserves to support the market.

A double-edged sword

The war in the Middle East has driven up crude oil prices this year, but it is especially the refined products market that is causing concern ahead of winter. “Falling refining capacity and production in the Middle East and Russia, combined with China's cancellation of export shipments to support its domestic supply, continues to constrain fuel availability,” says Ole Hansen, analyst at Saxo Bank.

“A draw on strategic reserves would help to compensate for the drop in commercial stocks” and would relieve prices, adds Giovanni Staunovo to AFP. However, “strategic reserves are designed to deal with temporary supply disruptions, not structural market imbalances,” he recalls. Lower reserves imply that “the market could become increasingly sensitive to supply risks, which could result in larger price fluctuations,” the analyst says.