On October 2nd, the leaders of the G7 nations issued a joint statement pledging “a coordinated release through the International Energy Agency (IEA) of 100 million barrels” of diesel over the next four months, with a substantial release in the first 20 days. The statement also includes plans to prevent simultaneous capacity concerns and to increase utilisation rates. This will eliminate the risk of refineries reducing output at the same time and increase the amount of diesel being produced. Perhaps most importantly, the nations announced their commitment to “refrain from export restrictions on energy and energy products between G7 countries”. While most consumers don’t directly purchase diesel at the gas pump, high prices affect them. Diesel powers most trucking, shipping, agriculture, construction and mining. Higher prices in these industries are pushed onto retailers and eventually, consumers. While the G7 statement is a step towards market stability, it’s unlikely to have a major impact on prices.
The release comes amid global uncertainty in diesel markets. Sanctions on Russian diesel production have been in place since the full-scale invasion of Ukraine in 2022, and the Iranian war has upended energy markets. Passage through the Strait of Hormuz is still volatile. Diesel has been reported to have shot up to $2.75/litre in Canada, almost 60% more than before the outbreak of war in Iran. Concurrently, TD Economics reported that U.S. distillate stocks stood roughly 11% below their five-year seasonal average.
On October 10th, President Trump announced that he would temporarily lift sanctions on Russian diesel and floated the United States as a potential buyer. The decision comes just weeks before midterm elections where affordability – especially gas prices – is expected to be a key issue. However, diesel prices fell only slightly before trending upwards once again. Industry representatives and market analysts dismissed the idea that the change would seriously affect market prices, arguing that though the deal may bring prices down by a few cents, ongoing global instability would continue to raise prices. President Trump’s decision also garnered criticism both domestically and abroad from lawmakers on both sides of the floor. A bipartisan group of senators published a letter asking the White House to withdraw from the agreement, saying it “damages American security interests and is a betrayal of the people of Ukraine”. Prime Minister Carney echoed this sentiment in a statement released on October 11th, saying “this agreement is in direct opposition to the efforts of Ukraine, Canada, and our allies”. The G7’s announcement appeared not to be enough for President Trump. He isn’t alone, as experts have questioned the possible impacts of the G7’s decision.
TD’s report showed that 100 million barrels would be equivalent to roughly 0.8% of global demand, a narrow scope compared to the amount required to significantly affect the diesel market. Furthermore, it wasn’t immediately clear whether the announcement referred to 100 million new barrels or if it was part of an existing agreement signed in March where members of the International Energy Agency (IEA) agreed to release 400 million barrels from their emergency reserves. The IEA appeared to confirm that the release would draw from March’s agreement. Put simply, there would not be a new release. However, some IEA members have either released or intend to release higher volumes of diesel stocks than originally planned, which will see the original 400 million barrel promise slightly increased. So, while some new reserves will be released, the announcement is largely a restatement of previous commitments and is ultimately unlikely to have a major effect on the global market. Still, the statement resolved uncertainty around export bans which had been floated in recent days, particularly by the United States.
Republican lawmakers, especially in battleground states, had pushed President Trump to consider banning diesel exports. A move he, at first, appeared to endorse. Analysts warned against the ban, arguing that, while it could reduce prices in the short term, it might eventually backfire as it would require cutting overall refinery production. Speaking to reporters shortly after the G7 announcement, Trump dismissed the idea of a ban, saying “we were never going to do it”. The pledge to refrain from export bans is important as it signals further cooperation in an increasingly fragmented geopolitical energy sphere. Though the pledge isn’t legally binding, and questions remain surrounding how much diesel each country will actually release, the statement reflects an ongoing commitment from the G7 nations to stabilize energy markets and refrain from isolationist policies, which could ultimately drive prices up even further.
For Canadians, there is some positive news. TD reported that, in the last six months, energy exports have risen by an average of 4.5 billion/month. Since the start of the US-Iran war, diesel’s share of total energy exports has more than doubled and now accounts for over $2 billion/month. The G7 pledge reduces some uncertainty around disruptions to Canadian supplies, particularly in North America. While the G7 pledge may bring some short-term relief to markets, particularly because of the promise to frontload the majority of the barrels, it’s unlikely to entirely reset the market. While a step in the right direction, the global market will likely need to see more reliable output in Russia and the Middle East for meaningful change.
Edited by Eavan Kallis