The administration of U.S. President Donald Trump told Germany and France on Thursday that they needed to draw on emergency diesel reserves to help lower global fuel prices or risk a U.S. ban on diesel exports, according to 3 people familiar with the discussions.
A source based in a European capital said Washington had asked the European Union to release 120 million barrels of diesel over the next six months to increase supplies of refined fuel and ease pressure on consumers.
Export ban option
The warning marks an escalation of U.S. pressure on Europe as Trump considers banning diesel exports to lower fuel prices in the United States ahead of the congressional midterm elections in November.
A U.S. official said it was in Europe’s interest to cooperate with the United States, while Washington was pursuing multiple avenues to increase supplies of refined products and lower their cost for consumers. U.S. officials are particularly frustrated with France and Germany, believing the two countries have not fully met previous commitments to release emergency reserves of oil and petroleum products. An export ban remains under consideration.
Europe’s growing reliance on U.S. fuel
Europe’s reliance on U.S. fuel has increased since it banned Russian imports in response to the war in Ukraine, followed by disruptions to Middle Eastern supplies stemming from the U.S.-Israeli-Iranian war. The European ban on imports of refined Russian petroleum products took effect on February 5, 2023, according to the Council of the European Union.
The European Commission warned last week that disruption of U.S. diesel exports could negatively affect both sides of the Atlantic. Commission spokesman Olof Gill said the bloc expected partners to consult before taking measures affecting common markets, adding that high-level contacts with Washington were continuing.
The U.S. pressure came despite a limited decline in domestic diesel prices last week. The latest data from the Energy Information Administration showed that the average on-road diesel price was 6.382 dollars per gallon on September 28, compared with 6.529 a week earlier, but it remained 2.628 dollars above its level a year earlier.
Supply shortages and refining pressures
The International Energy Agency said in its September report that the volume of oil processed by global refineries reached 81.4 million barrels per day in August, down 4.2 million from the previous year, with the losses concentrated in the Middle East, Russia and Asian economies that import crude.
The agency added that refining margins in the Atlantic Basin reached record levels in August, driven by a widening spread between diesel and crude prices. This reflected higher fuel prices relative to the oil used to produce it as a result of supply pressures.
The U.S. Energy Information Administration said in its September forecast that a global shortage of distillates had pushed up prices and encouraged higher U.S. exports. It warned of additional pressure during the fall and winter, when production rates decline because of refinery maintenance, coinciding with increased agricultural demand during the harvest season and demand for heating fuel.
Emergency reserves and the impact of higher diesel prices
International Energy Agency member countries agreed on March 11 to make 400 million barrels from their emergency reserves available to address supply disruptions caused by the Middle East war. It was the largest collective drawdown coordinated by the agency, with implementation to proceed according to each country’s circumstances.
European rules require member states to maintain emergency stocks of crude or petroleum products equivalent to at least 90 days of net imports or 61 days of consumption, whichever is greater. The Commission says that releases during supply crises are subject to consultation and coordination among countries, except in cases of extreme urgency.
The effects of higher diesel prices extend to transportation costs and agricultural production, as diesel is used to operate the trucks and trains that carry most goods, as well as most agricultural and construction equipment. This adds to pressure on the cost of delivering food and other products to consumers.
