Pressure from the oil refining process
On October 2nd, leaders of the Group of Seven (G7) industrialized nations agreed to coordinate the release of 100 million barrels of crude oil and fuel from reserves onto the market over the next four months. The plan is being implemented immediately, with a significant amount of diesel expected to be released in the first 20 days.
The figure of 100 million barrels is equivalent to about a day's worth of global oil demand, but it's diesel – the fuel currently in short supply – that's noteworthy. Diesel and related fuels account for approximately 28% of global oil demand and are widely used in freight transport, agriculture , construction, and industry. The price increase is therefore quickly passed on to transportation, production, and commodity costs.
In the US, retail diesel prices at one point exceeded $6.50 per gallon, putting significant pressure on farmers and businesses ahead of the November midterm elections. In Europe, futures prices also briefly surpassed $200 per barrel, while Asian markets faced pressure from increasingly limited supply.
Crude oil flows through the Strait of Hormuz have recently recovered significantly, but diesel and gasoline supplies from the Gulf remain constrained. Attacks on energy infrastructure in the Middle East and Russia have damaged numerous refineries, while Russia continues to restrict diesel exports and China is also tightening its supply of refined fuels.
The shortage, therefore, lies not entirely in the amount of oil extracted, but in the ability to convert crude oil into usable fuel. Adding more oil to the market is unlikely to immediately solve the diesel shortage if refining capacity has already declined or is concentrated in areas experiencing disruptions.
Domestic price pressures once led Washington to consider restricting diesel exports to conserve fuel for the US market. However, Europe has become increasingly dependent on US supplies after sharply reducing imports of Russian fuel, while some refining capacity in the region has been shut down in recent years due to high operating costs and the energy transition. Approximately one-third of Europe's diesel imports now come from the US.
If this supply is hampered, European importers will have to seek fuel from other markets that are also experiencing shortages. International prices could rise further, disrupting trade flows and putting reverse pressure on American refineries and consumers.
That risk ultimately led the G7 to choose to coordinate the release of reserves, while also committing to avoiding energy export restrictions among members. US President Donald Trump also announced that he would not impose a ban on diesel exports.
The market reacted quickly to the announcement. European diesel futures prices fell sharply, and prices in the US also declined. However, the impact on consumers will be slower because fuel takes time to move from storage through the distribution system to the retail market.
Limits of stockpiles
The effectiveness of the intervention also depends on an unclear detail: how much of the 100 million barrels expected to be released to the market will be diesel, how much crude oil, and how much will fall within the remaining commitment from the previous plan.
In March, following the outbreak of hostilities in Iran , the International Energy Agency coordinated the release of 400 million barrels of oil and fuel from its reserves, the largest release ever. Approximately 325 million barrels have been released to the market, while some countries have yet to fully fulfill their commitments.
If half of these 100 million barrels are diesel, the average addition would only be about 400,000 barrels per day. This could help ease price pressure, but it would still be significantly lower than the supply previously coming from Russia and other disrupted regions.
The stockpiling therefore gives the market more time rather than addressing the root cause of the fuel shortage. The barrels of oil released may partially offset supply for a few months, but they cannot repair damaged refineries or quickly replace diesel that has disappeared from the market.
The G7 not only needs to open its reserves but also needs to consider coordinating refinery maintenance schedules, utilizing additional capacity, and encouraging fuel-producing countries to increase supply. These measures show that the focus of the crisis has shifted from the question of how much oil there is to the question of how quickly oil can be processed and brought to market.
In less than seven months, the world has had to rely on two massive deployments of strategic reserves: 400 million barrels in March and up to 100 million barrels in the latest plan. The continuous need to open these reserves shows that strategic reserves remain essential, but also reveals their limitations, as the bottleneck lies outside the oil storage facilities themselves.
Following successive stockpile releases, the challenge to energy security is not just about maintaining sufficient oil reserves, but also ensuring that fuel can be produced and delivered to market when needed.
Source: https://hanoimoi.vn/diem-nghen-phia-sau-con-sot-dau-diesel-1759368.html
