France Says Europe Will Release 42 Million Barrels From Oil Reserves Over Three Months, Half of It Diesel

Since the G7 agreed on Oct. 2 to release 100 million barrels from emergency stocks, and the International Energy Agency voted on Oct. 15 to speed up the remaining volumes, Europe now has a number for its own contribution: 42 million barrels over the next three months.

French Economy Minister Roland Lescure announced it Thursday, Oct. 29, ahead of a meeting of EU energy ministers in Luxembourg. Half the volume will be diesel.

What France says will happen

Lescure said France's previously announced 10-million-barrel diesel drawdown will reach the market within days. He expects prices to react as early as next week.

The fuel will be sold at cost, with no markup. Lescure estimates that will lower pump prices by 12 to 18 euro cents per liter.

Diesel is "at the heart of our challenges," he said. He did not say whether France's 10 million barrels is counted inside the 42-million total.

A ministry adviser said this is the first time France has released strategic reserves specifically to bring prices down. Fuel distributors have been encouraged to start advertising reduced prices from Nov. 1. Small distributors in remote areas will get zero-interest loans.

"Short-term relief"

Lescure himself set modest expectations. "Hopefully the crisis will solve itself slowly but surely, and if not, we'll keep our options open," he said, leaving the door open to further releases.

He also said the crisis "has been going on for too long" and that "we need to find diplomatic ways to sort it out." France is working on a "multilateral agreement" to lower the cost of insurance for ships transiting the Strait of Hormuz, which Iran has restricted since U.S. and Israeli strikes on Iran began in February.

The scale is small next to the disruption. In peacetime, about 20 million barrels a day moved through Hormuz, against a European release of 42 million barrels spread over three months.

The wider drawdown

The IEA's March collective action pledged 400 million barrels. By Oct. 15, about 330 million had been released, with roughly 100 million to go. The United States accounts for more than 40 percent of what has been released so far, the agency said.

The IEA board said specific plans were in place for more than 20 million barrels of diesel to be released as soon as possible. It also pointed to continued tightness in oil markets, especially diesel, and urged members with production and refining capacity to boost output of crude and refined products.

The Trump administration had pressed European countries to tap their stockpiles as fuel prices climbed.

Prices and politics

Brent crude futures were trading around $110.44 a barrel on Oct. 29, down about 1 percent on the day. On Oct. 14, Brent was near $104. The 52-week high is $126.41.

High energy prices have fueled public protests in France and elsewhere in Europe.

On the supply side, President Emmanuel Macron returned last week from a five-country Gulf tour with a deal with Saudi Arabia, Kuwait, the UAE and Bahrain for 300,000 tonnes of diesel a month. How much that will move pump prices is unclear, given swings in international markets.

President Trump said after a call with Vladimir Putin earlier this month that a deal had been reached and that energy and diesel prices would come down. He also credited U.S. efforts in the strait.

The military situation has not eased. Maritime officials said a container ship and a dry bulk carrier were sunk near Hormuz in separate incidents in the 24 hours before Oct. 14. Iran has said it is stepping up strikes in response to the U.S. blockade of its ports and tougher sanctions introduced after peace talks stalled.

The Houthis, who are backed by Iran, said on Oct. 14 they would launch more attacks on Saudi oil facilities and airports.

What to watch

The first test comes within days. Lescure's 12-to-18-cent estimate is a government projection, and it runs into a market where Brent was near $104 on Oct. 14 and around $110 on Oct. 29. If the diesel cut shows up at the pump around Nov. 1 as promised, it will be measurable. If it doesn't, Lescure has already said more releases are on the table.