France weighs releasing strategic reserves: will diesel fall?

For the first time in weeks there is a clear downward signal for fuel prices. France proposed on Friday to release strategic oil and diesel reserves, under pressure from the United States, which otherwise threatened an export ban on diesel. The G7 countries agreed: together they will put 100 million barrels of oil and diesel on the market, spread over four months. The markets reacted immediately.

What was agreed

The proposal came from Paris: 50 million barrels of crude oil and 50 million barrels of diesel from strategic reserves. The trigger was the American demand to release stocks or risk a diesel export ban. The G7 agreed and committed to releasing a large share within the first twenty days. The 50 million barrels of diesel amount to roughly 17 percent of Europe’s emergency diesel and gasoil stocks.

Why it matters for Belgium

Belgium’s maximum price for diesel and petrol is calculated every working day by the FPS Economy based on international quotations for refined products on the Rotterdam market. When that product price falls, the maximum price can follow. More supply on the world market usually means a lower price, and that is exactly what a reserve release does.

But it takes time

The release is spread over four months, not all at once. And the physical market remains tight: the war around the Strait of Hormuz disrupts supply and a pipeline in Saudi Arabia was recently attacked. Diesel premiums remain high. An agreement does not fill a ship overnight.

How the Belgian price reacts

On top of that, Belgium’s maximum price moves deliberately slowly. The FPS uses a twenty-day moving average and only adjusts the price once that average crosses a threshold. A sharp one-day fall therefore does not immediately mean a cheaper pump.

Conclusion

The direction is downward for the first time in weeks, especially for diesel. But postponing your fill-up on the basis of an agreement is premature. We follow the official list and will report as soon as the FPS implements a change.

Source: FPS Economy - Maximum prices, Politico - France floats major oil and diesel reserve release, The Telegraph - Europe to release diesel stockpiles.