The Group of Seven (G7) countries have agreed to release 100 million barrels of crude oil and diesel from emergency reserves over several months to address rising energy prices. This decision follows pressure from United States President Donald Trump amid ongoing conflicts involving the US and Israel against Iran, and Russia's war on Ukraine, which have contributed to increased global oil and diesel prices.
Hamad Hussain, a climate and commodities economist at Capital Economics, stated that the emergency release by G7 members is expected to exert some downward pressure on prices, particularly global diesel prices, but noted that the impact would be short-lived as it is a temporary solution to the supply crunch. Oil prices increased by more than $4 a barrel on Thursday, while global diesel prices reached a record high of $6.50 per gallon, up from $5.61 a month earlier, according to the American Automobile Association (AAA).
The G7, which includes Canada, France, Germany, Italy, Japan, the United Kingdom, and the US, along with representation from the European Union, announced that a substantial diesel release would occur within the first 20 days, with discussions on additional releases to follow. The G7 leaders, after a video conference chaired by French President Emmanuel Macron, stated, "Taking into account commitments that have already been fulfilled, we will implement our commitments with a coordinated release through the IEA of 100 million barrels."
Earlier this week, the International Energy Agency's (IEA) Executive Director Fatih Birol mentioned that members had already released about two-thirds of a prior 400-million-barrel agreement. The G7's release is set to begin immediately and last for four months, although it remains unclear how many oil and diesel stocks each member will contribute.
The G7 also emphasized the importance of coordinating maintenance schedules across member refineries to avoid simultaneous capacity shutdowns and to temporarily increase utilization rates where feasible. They urged member countries to refrain from imposing export restrictions on energy products among themselves.
The Trump administration had previously threatened to impose a ban on US diesel exports and pressured Europe to release its emergency diesel stocks to alleviate rising diesel prices. The ongoing conflicts in the Middle East and Ukraine have disrupted energy exports and contributed to the current energy crisis.
Neil Atkinson, former head of the IEA's Oil Industry and Markets Division, identified three key factors contributing to the decline in global diesel supply: reduced diesel exports from the Middle East to Europe, a halt in Russian diesel exports due to attacks on Russian refineries, and China's cessation of diesel exports. He noted that demand for diesel remains high, particularly due to the agricultural harvesting season.
The US is the world's largest producer and exporter of diesel, producing approximately 240.5 million tonnes and exporting around 1.26 million barrels per day. Russia is the second-largest diesel exporter, supplying 783,400 barrels per day, while Saudi Arabia is the second-largest producer but consumes much of its diesel domestically.
Following the G7 announcement, President Macron stated that the release of oil is expected to lower petroleum product prices, especially diesel. Brent crude prices briefly dropped below $100 a barrel after the announcement but later rose to about $102.
Naeem Aslam, chief investment officer at Zaye Capital Markets, described the G7 energy release as "very much needed" but indicated that the announcement was primarily aimed at alleviating pressure on the energy market. He suggested that while the immediate pressure on energy prices may ease, there could be a reversal in the market as conditions evolve.
Atkinson remarked that the G7's fuel release is a welcome measure but does not address the underlying issue of global supply remaining below normal levels. He emphasized that the focus is now on the end use of products, particularly diesel.
The rising diesel prices have raised concerns for the Trump administration and Republicans, who fear the impact on votes in the upcoming November midterm elections. Trump had previously pressured Ukraine to halt attacks on Russian diesel facilities and indicated that he may ask European countries to release diesel stocks. However, he later clarified that the US would not impose a diesel export ban, stating that Europe has sufficient diesel and would contribute significantly to the global supply.
Frederic Schneider, a nonresident senior fellow at the Middle East Council on Global Affairs, noted that high energy prices are a concern for many countries, as diesel and gasoline play crucial roles in their economies. He explained that while gasoline primarily fuels consumer vehicles, diesel powers various types of machinery and transportation, meaning that rising diesel prices can have widespread economic implications.
Schneider highlighted that higher diesel prices act as a tax on production and logistics, while higher gasoline prices directly affect consumers. This situation could lead to stagflation, as inflation rises while margins in transport and agriculture are squeezed, creating a dilemma for central banks regarding interest rate adjustments.
The White House is reportedly preparing an executive order to address record-high US diesel prices, which could be announced as early as next week. The situation remains fluid as global energy markets continue to respond to ongoing geopolitical tensions and supply chain disruptions.