IEA Diesel Release: Political Move or Market Fix?

The International Energy Agency has agreed to release more than 20 million barrels of diesel as soon as possible. According to CNBC, this volume is equivalent to less than one day of global diesel demand or slightly more than five days of U.S. consumption. The decision comes as fuel prices surge globally, with the retail price of diesel standing at an average $6.32 per gallon in the US, more than 70% above the same period last year, according to AAA. The Trump administration has pushed Europe to release diesel stocks to stabilize the market ahead of the US midterm elections on Nov. 3.

The IEA did not specify a timeline for the release in its statement. However, the Group of Seven nations led by France said on Oct. 2 that they would deploy substantial diesel stocks over 20 days. If that schedule holds, IEA members would supply about 1 million barrels each day for almost three weeks. The agency, headquartered in Paris, has more than 30 member states. Created in 1974, it is tasked with maintaining energy security by deploying oil stockpiles in response to crises.

Analysts suggest the release does not address the fundamental supply issue. Andy Lipow, president of Lipow Oil Associates, noted that the release does not solve the basic problem of how to increase production at refineries which are damaged in the Middle East or Russia, and operating at capacity in the USA. Prices have surged as Ukraine has pounded Russian refineries and Iran and its Houthi allies have attacked energy facilities around the Persian Gulf. Tom Kloza of Gulf Oil described the situation as a rest stop in a rip-roaring bull market.

The IEA members previously agreed in March to deploy 400 million barrels of oil in response to the global supply disruption triggered by the Iran war. They have since agreed to release the remaining 100 million barrels pledged in March in a timely manner consistent with national circumstances. The IEA’s governing board said 330 million barrels have been released so far. Some members have deployed more than they originally pledged so the total release will exceed the 400 million barrels agreed in March. The current diesel release appears to be a political measure to demonstrate action, rather than a structural solution to the refining capacity crisis.