G7 jointly released 100 million barrels of diesel and oil, diesel futures dropped

On Friday, the G7 released 100 million barrels of diesel and crude oil from their emergency reserves. This move was made under the pressure from US President Trump. At the same time, the G7 also promised to no longer restrict energy exports among themselves. After the start of the conflict in the Middle East, the IEA coordinated the release of 400 million barrels of oil, which was the largest scale ever. This 100 million barrels of oil will be released immediately and will last for four months. Among the G7 and its partners, a large amount of diesel will be released within 20 days.

Behind this round of oil release is a contest between the US and Europe. The US has been pressuring the EU to reduce its emergency diesel inventory and has warned that if it does not act, the US may ban the export of diesel to Europe. Europe is now increasingly dependent on US diesel, and if it were to ban it, the supply would decrease and the economic losses would be significant.

The aim of the Trump administration is to bring down the soaring fuel prices before the mid-term elections. He told the media that the United States will not impose an export ban on diesel, and argued that although the ban was repeatedly mentioned in the past two weeks, the plan was never actually put on the agenda. Trump wants to lower oil prices, and behind this is real political pressure. In the latest polls, his approval rating has dropped to an all-time low of 32%.

What voters are most concerned about is the cost of living, and only 17% of Americans approve of Trump's approach to handling the cost of living. If the cost of living does not come down, the votes are in danger. He regards lowering energy prices as a core priority, hoping to alleviate the impact of the Iran war and high oil prices on consumers, especially in industries such as truck transportation and agriculture that rely on diesel for their operations.

The statement of the G7 countries said that member states would avoid imposing energy export restrictions on each other, which relieved some pressure on the Trump administration's diesel export ban. However, analysts cautioned that this is more of a political statement rather than a binding commitment. This year, due to the war in Iran, the supply from Gulf oil-producing countries was disrupted, and Europe has significantly increased its imports of American diesel.

The deeper Europe's dependence on the United States. The more chips the United States holds. France has also proposed a plan, asking European countries to release 50 million barrels of diesel, and the member countries of the IEA to release another 50 million barrels of crude oil. Calculated this way, 50 million barrels of diesel is equivalent to 17% of the EU's emergency diesel and gasoline inventories and about 3% of the annual consumption.

As the news of inventory release came out, US diesel prices fell by 3.25% to $4.49 per gallon. The benchmark diesel in Europe dropped even more severely, by $83 per ton, a decline of 5.75%. Diesel is the most scarce energy commodity globally, with the largest supply gap and the highest price. By releasing the diesel reserves, it is replenishing the most in-demand areas. The futures market reacted immediately, and for the short term, it had a suppressing effect on the price.

Previously, the 4 billion barrels of emergency reserves released by the IEA have already been consumed by two-thirds. Traders are well aware that as long as the geopolitical conflicts remain unresolved, the supply-side risks will persist. The release of the reserves is merely an attempt to buy time and can not eliminate the risks. The risk-averse sentiment in the futures market remains strong. Although there has been a short-term price decline, the decline in the far-month contracts is less than that of the near-month contracts.

Overall, the oil price remains at a high level, with Brent at $109 per barrel and WTI at $101 per barrel. Traders remain pessimistic about the long-term supply. When these emergency reserves are exhausted, if the geopolitical conflicts do not ease or demand experiences unexpected growth, the futures prices will undergo a retaliatory rebound.