G7 to release 100 million barrels as diesel prices hit record highs

The G7 will release 100 million barrels of oil and fuel products, led by diesel, over the coming weeks. The move aims to cool record fuel prices but raises concerns over shrinking emergency reserves.

In Short

• Large diesel volumes will be released within 20 days, rest over months
• Trump faces election pressure as fuel costs hurt confidence in economy
• Russia's export ban and war damage have tightened global diesel supplies

The Group of Seven wealthy democracies on Friday said they would release 100 million barrels of oil and fuel products in the coming weeks, starting with substantial volumes of diesel, after the fuel recently hit record high prices in the United States. President Donald Trump said the diesel release would happen "immediately", in line with the G7 pledge to begin at once with a "frontloaded substantial release" of diesel within the next 20 days and the rest over four months.

The move comes as Trump and his Republican Party face pressure over rising prices ahead of the November 3 midterm elections. Trump announced the action on social media. His approval ratings on the economy have fallen to a new low, according to an AP-NORC poll, as the Iran war and his trade battles have pushed up US prices for oil and other goods.

Fuel prices in the US and abroad have surged during the eight-month-long war, a price increase Trump has repeatedly said is worth paying to ensure that Iran does not get nuclear weapons. The national average price of diesel in the US was USD 6.37 a gallon on Friday, according to AAA, after touching a record USD 6.52 on September 22. Diesel prices have also hit records in Europe.

Michael Lynch, distinguished fellow at Energy Policy Research Foundation, a non-partisan research institution focused on energy and economics, said the release of diesel in Europe could mean fewer diesel exports from the US. That, he said, could cut prices by 25 to 50 cents a gallon after a few weeks.

France, which holds the rotating presidency of the G7, announced the decision in a statement issued after videoconference talks chaired by President Emmanuel Macron. The G7 countries are Canada, France, Germany, Italy, Japan, the UK and the US, along with the European Union.

The release follows a March announcement that member countries of the International Energy Agency would release 426 million barrels of oil and products to stabilise the oil market. European Union countries committed about 92 million barrels, with that pledge weighted towards refined products made from crude oil, such as diesel.

"This common decision and this unity should bring down prices," Macron said. "The volumes we're releasing should also add liquidity to the market and bring down prices."

Along with the rise in crude oil prices, other factors have added to the pressure on diesel supplies, including Russia's decision to ban exports after Ukrainian drone strikes on its refineries. Europe does not import Russian diesel, but other buyers of Russian diesel, such as Turkey and countries in Latin America, now have to compete with Europe for available barrels. At the same time, refined product shipments from Persian Gulf producers have fallen because of war damage and blocked export routes.

The announcement pushed US oil prices down 2 per cent, but Pavel Molchanov, investment strategy analyst at Raymond James, said "the impact was lessened by lack of clarity on an important question". He asked whether the 100 million barrels was in addition to the amount agreed in March, or "is this the final portion of the existing pledge?"

Some Republicans in the US had called for Trump to ban US diesel exports to try to bring down domestic prices. But the G7 statement said member countries had agreed not to limit energy exports to one another. Oil market analysts have warned that a US export ban could lower prices in the short term, but could later backfire by reducing petrol supplies because diesel output cannot be cut without also reducing overall refinery production.

Asked about a possible US export ban on Friday, Trump said, "we were never going to do it." He told reporters at the White House, "We're not going to be doing the export ban. We're going to be doing what we're supposed to do." He added that Europe is making "a major world contribution, and so are we."

Experts also warned that the emergency release could provide short-term relief while creating longer-term risks. Jim Krane, energy research fellow at Rice University's Baker Institute, said, "Draining stocks will reduce retail fuel prices for a while, at the cost of leaving Europe with less emergency cover." He added, "At some point in the future Europe and the rest of the G7 will have to refill their strategic reserves. Normally they try to do this when prices are low. Nobody knows when that will happen. It's a risk."

With two wars under way that involve attacks on refineries and exports, Krane said, "it's not the best time to be frittering away your emergency stocks -- especially when there is no visibility on future prices or peace agreements." Overall, the G7's plan is aimed at easing pressure on diesel and oil prices in the short term, even as questions remain over its scale, timing and longer-term impact.

With PTI Inputs

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