This past Friday, Europe agreed to President Trump’s request to release diesel oil from reserves, although experts suggest it might not significantly impact U.S. gas prices.
Up to 100 million barrels of diesel oil could be released over the next few months, which might lower global oil prices somewhat—experts say by a few dollars. This action could also help to decrease the high European diesel prices, which are nearing the equivalent of $8 a gallon.
Most of the diesel consumed in the U.S. is produced domestically, so the effect on American prices might be limited to just a few cents, according to Joe Adamski, a managing director at ProcureAbility, a supply chain consultancy.
“The government is trying to tackle a supply shortage with quick fixes and using reserves. It’s really just a temporary solution,” Nic Puckrin, a cross-asset analyst and founder of Coin Bureau, mentioned.
Previously, Trump had suggested banning diesel exports, a move that would be detrimental for European countries. However, a G7 agreement to release reserves has set that idea aside, according to a Friday statement. There are reports that he might sign an executive order next week to cut U.S. diesel prices.
Experts indicated that these actions could initially reduce U.S. gasoline prices by 30 to 40 cents, but any relief would likely be short-lived as refiners might shift production elsewhere.
A more sustainable fix would require resolving the ongoing conflict in Iran, which has effectively blocked the Strait of Hormuz, disrupting global energy supplies for several months.
On Thursday, Trump stated that he believes Iran is “ready to fold up,” claiming the U.S. will prevail in the conflict “right after the election.” However, he also mentioned that military strikes against Iran could resume soon after the midterms in November.
Adamski pointed out that until there is a resolution that allows for the reopening and stabilization of key waterways, supply disruptions will likely continue.
French President Emmanuel Macron announced the G7, which includes the U.S., France, Italy, Germany, Japan, Britain, and Canada, has reached an agreement to release 100 million barrels of diesel and crude oil from their reserves.
The International Energy Agency will oversee this release, and Macron affirmed that participating nations would not impose restrictions on the exchange of energy and petroleum products among themselves.
Trump noted in a post on Truth Social that this release comprises “a massive amount” of Europe’s diesel reserves.
This move could help lower fuel prices in Europe, which generally sources most of its fuel from the Middle East and Russia. Disruptions linked to the Strait of Hormuz and Ukrainian strikes on Russian refineries have led to increased stockpiling in Russia, making Europe even more dependent on U.S. supplies.
Puckrin emphasized that while easing pressure on supply in Europe might affect the global market, the overall impact on the U.S. could be less significant than what many might anticipate.
The total amount set to be released is roughly equivalent to just one day’s global oil demand, and G7 leaders haven’t specified how the release will be divided among them.
Earlier this year, the IEA coordinated a similar release of 400 million barrels from strategic reserves. Currently, the U.S. Strategic Petroleum Reserve has about 283 million barrels, its lowest level since the 1980s. Despite this, gasoline prices have still surged above $4 a gallon, with diesel prices exceeding $6.
In a recent update, the U.S. offered to release the final 40 million barrels from that earlier agreement, which is projected to only decrease gasoline prices by a maximum of 10 cents, with a more realistic drop of three to five cents expected.
In the lead-up to the upcoming November midterms, Trump and other Republican leaders have been keen to lower gasoline prices, particularly diesel.
On Friday, national average gasoline prices fell slightly to $4.40 a gallon, down from $4.49, while diesel also decreased to $6.37 from $6.50. However, diesel prices remain well above last year’s average of $3.70 a gallon. Since diesel fuels heavy trucks, its cost significantly affects transportation expenses.
This means that higher diesel prices could lead to increased prices for everyday items, like food and clothing, since most goods are trucked across the country. Moreover, since refined fuel is used for heating homes, Americans may face steeper heating bills this winter.
Reuters reported that Trump is considering signing an executive order next week that could facilitate greater use of red-dyed diesel, which is chemically identical to standard diesel but is colored to indicate its tax-exempt status. This type is usually intended for off-road equipment like tractors and is generally prohibited from being used on public roads.
