The Group of Seven announced on Friday that it would release 100 million barrels of diesel immediately over four months, coordinated through the International Energy Agency, after US President Donald Trump said Europe had agreed to release a large volume from its reserves. The move comes as China suspends gasoline and diesel exports during October to secure supplies for its domestic market.
The moves come as diesel prices reach record levels, supplies from the Middle East are disrupted and Russian supplies decline because of the war in Ukraine, amid US pressure on European countries to draw on their strategic reserves.
European reserve withdrawals
Trump said, “Europe has just agreed to release a large amount of diesel from its stocks, and it will start immediately.” The G7 said a major, early injection of diesel supplies from its members and partners would take place during the first 20 days, urging producers to refrain from imposing a ban that could exacerbate market tensions.
Journalist Salam Kiyali said European Union countries agreed on the need to adopt a collective position on drawing down strategic stocks. The proposals include withdrawing 50 million barrels of diesel from EU countries’ reserves, along with a similar volume of crude oil or diesel from the reserves of countries that are members of the International Energy Agency.
Kiyali added that the European Commission stressed that any withdrawal must be coordinated with the International Energy Agency, which said markets had relatively adequate import volumes and supplies despite the shortfall. He said the crisis was primarily a matter of higher prices rather than a severe shortage of supplies.
According to Kiyali, a US request for France and Germany to withdraw around 100 million barrels from their diesel reserves caused European unease, as EU countries believe the move should be coordinated through the International Energy Agency. The requested withdrawals could deplete around 40% of the strategic stocks held by some European countries, raising concerns about energy security, industry and markets if the Strait of Hormuz crisis continues for several more months without an agreement between Iran and the United States.
Price pressures in the United States
Journalist Mohamed Al-Ahmad said the US administration had stepped up pressure on European countries to help contain the diesel crisis and had asked France and Germany to use their emergency reserves, while hinting that it could impose a ban on US diesel exports if European countries failed to respond.
US demand stands at around 120 million barrels to be secured over the next six months, as the market loses large volumes of supplies from the Middle East and Russian supplies decline because of the war in Ukraine.
The US diesel price reached around 6.47 dollars per gallon, up nearly 70% from levels before the war with Iran. Prices are rising ahead of the midterm elections, prompting the White House to increase pressure to boost supplies and bring prices down.
China suspends gasoline and diesel exports
China suspended gasoline and diesel exports during October amid supply disruptions linked to tensions in the Strait of Hormuz and declining oil volumes arriving from the Middle East, as well as increased domestic demand during the National Day holiday.
Journalist Shaimaa Jo Ei Ei said a decline in China’s commercial inventories of gasoline and fuel had prompted the National Development and Reform Commission, which oversees the refined-oil export quota system, to temporarily halt exports to secure supplies for the domestic market.
The commission directed major Chinese oil refiners, including PetroChina, to suspend new commercial contracts and halt shipments scheduled for export during October until domestic market needs had been secured.
Potential repercussions for Asian markets
Economic analyst Rong Huan said the Chinese government was prioritizing supplies for the domestic market and energy security before exports. He explained that the suspension of exports was linked to uncertainty surrounding energy and crude-oil supplies, the continuation of the war in Iran and the closure of the Strait of Hormuz, as well as declining Chinese fuel inventories.
Huan added that China is one of Asia’s largest suppliers of petroleum products, which could put pressure on markets that depend on its supplies, including the Philippines, Japan and Singapore. Around 30% of petroleum-product imports in some markets come from China.
