G7 agrees to release diesel from strategic reserves

Susannah Streeter (0:05)

The G7 agrees to dip into its emergency fuel reserves. Will it bring diesel prices down? It's World Business Express from the BBC World Service, IMBC at DeBio. Also, criminals turn to violence to steal cryptocurrency and OpenAI fires three researchers for allegedly mishandling information.

So if you'll be filling up your car this weekend, you might just notice diesel is costing you more. And in the last hour or so, the leaders of the G7 group of major economies have agreed to release up to 100 million barrels of diesel and crude oil stocks from strategic reserves over the next four months. The current chair of the G7, Francis President Macron, also said it was agreed that there would be no ban on exports between G7 members, but will releasing those reserves really make much difference? Dan Brugiet served as US Energy Secretary during President Trump's first administration.

Dan Brugiet (1:06)

And that could have a positive impact on the near-term market price. But the long-term market price is pretty much unaffected. Prices will creep back up because the market does realize that you can't sustain that amount of release. You eventually run out.

Susannah Streeter (1:19)

Dr. Carol Nahle is Chief Executive of Advisory and Research Agency Crystal Energy, which monitors global energy markets, policy and geopolitics.

Carol Nahle (1:28)

When a country builds strategic reserves, it's not for day-to-day usage. It's really for the rainy days when you have some serious crisis that's not going to be resolved anytime soon. And prices increase tremendously, and therefore governments want to ease the pressure on the economy, on households and industry. So they tap into those strategic reserves to achieve that purpose. But the problem, if they cannot refill those reserves quite rapidly, then their buffer becomes thinner and thinner, and they become more vulnerable to potentially bigger crises. So they have to do it very carefully.

Susannah Streeter (2:06)

But why are diesel prices rising so much faster than petrol prices now?

Carol Nahle (2:11)

It's mainly the availability of refineries that supply diesel to the world, because not all refineries can produce the same products. So yes, they can take the same crude oil and they process it, but they don't all produce the same volumes of different oil products, whether gasoline and diesel. But on top of what's happening in the Middle East, which used to be a major exporter of diesel, you have Russia.

Russian exports have been curtailed because their refineries and infrastructure have been attacked by Ukrainians following Russia's invasion of Ukraine. And as a result, recently, Russia decided to curtail its exports so that they can meet the needs domestically rather than sending it abroad. So on top of what's happening in the Middle East, you have the loss of another important exporter of diesel. And that's what we are seeing today, these higher prices because of curtailed supply.

Susannah Streeter (3:09)

Well, Russia's president Putin says, I mean, they have enough diesel to supply globally, but wouldn't do so except the sanctions are lifted. So is that going to happen anytime soon?

Carol Nahle (3:21)

Definitely Russia has a lot of potential in terms of diesel exports. I mean, they were among the largest exporters of diesel. Even if the sanctions were lifted tomorrow, it doesn't mean that Russia can suddenly export all its diesel to the rest of the world. They will need some time to rehabilitate existing infrastructure and also expand it. But definitely, if the sanctions are relieved, then we should see some easing of the pressure on diesel prices, because the market will expect more diesel to come.

Susannah Streeter (3:51)

And how much are November's US elections shaping Washington's approach to diesel supplies and prices?

Carol Nahle (3:59)

Definitely the White House is concerned about the impact of higher energy prices, whether diesel or gasoline, on voters. And we often see in the US that some kind of resolution to high energy prices happened before the midterm elections.

Susannah Streeter (4:17)

That was Dr. Carol Knackley of Crystal Energy. And those higher fuel prices could have consequences well beyond the palms. Randeep Somel is a fund manager at M&G Investments. Randeep, if diesel and other energy prices stay this high, how much harder will it be to bring inflation back down? Because we have seen Eurozone inflation reach its highest level in three years.

Randeep Somel (4:40)

Busy, yes, that's right. I mean, thankfully for today, we have seen oil come back 4%.

So it's down back below $100 a barrel. But unless we can try and get a grip on some of these supply issues, this persistent higher energy prices will factor through to higher inflation and eventually increasing interest rates.

Susannah Streeter (4:59)