IEA says it will release 20 million barrels of diesel ‘as soon as possible’

Member states of the International Energy Agency, including Canada, will release 20 million barrels of diesel “as soon as possible” into the global market to ease the pressure on fuel costs, the agency said in a statement.

Crude oil exports through the Strait of Hormuz are slowly recovering after more than half a year of conflict between the United States and Iran but oil prices still face volatility, with the rising cost diesel at the centre of the turbulence.

In March, IEA members agreed to release more than 400 million barrels of oil from their emergency reserves to calm oil markets. Canada agreed to release a total of 23.6 million barrels – the third highest volume released by an individual member.

On Thursday, the IEA confirmed that over 330 million barrels of emergency reserve oil had been released since March, with another 100 million to go. Of the remaining 100 million barrels, 20 million will be released “as soon as possible,” the agency said.

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Members of the IEA have “agreed to accelerate” the collective release of “over 20 million barrels of diesel as soon as possible,” the IEA governing board said in a statement Thursday.

“Some IEA Members have released higher volumes than initially pledged in March while other Members intend to do so, making the total amount of stocks to be released exceed the original total of 400 million barrels,” the statement said.

3:13 G7 to release 100 million barrels of oil reserves as diesel prices surge

The war in the Middle East has created “the largest supply disruption in the history of the global oil market,” IEA said in its oil market report for October.

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“Diesel and jet fuel markets look to be particularly vulnerable to an extended loss of Middle East production and exports, given limited flexibility elsewhere to increase output,” the report said.

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IEA is also encouraging members with oil production and refining capacities to boost supply of crude and refined products, “particularly diesel.”

Diesel is “setting the terms for the entire energy market,” a report by market monitor Oil Market Daily said on Friday.

“Wholesale diesel hit record highs of around $220 a barrel in Europe and the U.S. in September,” it said, citing IEA data and adding that global diesel exports were 700,000 barrels per day lower than a year earlier.

While most Canadians don’t buy diesel at the pumps the way that they do regular gasoline, consumers still pay indirectly for higher diesel costs since the fuel is used to power trucking, agriculture, construction, mining, rail, marine transport and some industrial activity.

Analysis by TD Bank economist Marc Ercolao said oil markets are “still far from functioning normally.”

While more barrels of crude oil have started to move through the Middle East, they are moving through “more complex and less transparent routes.”

This has meant higher freight costs, as well as higher cost of insurance and other logistics for the oil market.

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“Diesel is currently the tightest part of the barrel,” the report says.

While the move by the G7 to release additional barrels of oil can provide “some near-term relief” for oil markets, it is “not enough to reset the market,” the TD analysis said.