Oil tumbles $2 as Europe taps diesel reserves in response to Trump
Oil prices declined by $2 following the agreement among European leaders on Friday to fulfilll a request from US President Donald Trump to release diesel from their reserves. This move aims to lower prices and diminish the necessity of importing fuel from the United States. Brent experienced a decline of $1.80, reflecting a decrease of 1.76 percent, trading at $100.50 per barrel as of 10:49 am. West Texas Intermediate declined by $2.02, representing a decrease of 2.18 percent, settling at $90.85 per barrel. For the week, Brent has declined approximately 2.84 percent, while WTI has decreased by around 1.54 percent. European Union countries reached a consensus on a French initiative to release supplementary diesel stockpiles, according to a source. “Europe has just agreed to release a massive amount of their heavily stocked Diesel Oil,” Trump wrote in a post on Truth Social. Previously, Trump had indicated he was considering a ban on US diesel exports. “Europe is feeling pretty vulnerable,” said Phil Flynn. “Europe would be one of the areas to suffer the most if we put an export ban on diesel.”
EU governments took action following deliberations on France’s proposal for European nations to release 50 million barrels of diesel, alongside a request for International Energy Agency members to release 50 million barrels of crude oil, according to three sources familiar with the discussions, as reported. Under the proposal, Europe would release a portion of the diesel volumes over a span of 20 days, according to two sources. French President Emmanuel Macron presided over a videoconference with G7 leaders on Friday, according to the Elysee Palace. It remains uncertain whether G7 nations have reached a consensus on France’s suggestion regarding the quantities of fuel to be released. “This highlights that the main stress in the energy market is no longer crude availability, with Middle East flows recovering, but rather refined product supply, constrained by reduced refinery capacity and output across the Middle East and Russia,” said Ole Hansen. On Thursday, prices experienced an uptick following a report from Reuters indicating that Chinese refiners had halted oil product exports for October in an effort to maintain domestic inventories.
Additionally bolstering prices, the source indicated that the United States was dispatching a third aircraft carrier along with up to 10,000 additional troops to the Middle East as Trump considered the possibility of resuming strikes on Iran following the midterm elections. Hamad Hussain stated that another release of oil stocks “could be enough to help tip the overall market back into a slight surplus if the recent pick-up in flows from the Middle East is sustained”. Barclays noted that despite improved crude flows from the Middle East, the fundamentals of the physical market remained robust, with inventories continuing to decline and immediate cargoes fetching significant premiums over future prices. It raised its fourth-quarter Brent forecast by $20 a barrel to $115 and lifted its 2026 forecast to $100 a barrel. In recent developments, President Volodymyr Zelenskiy reported via social media that Ukraine has targeted oil facilities located in Russia’s Samara and Volgograd regions within the last 24 hours. Global shares experienced an uptick on Friday as the volatility in bond and currency markets subsided in anticipation of crucial US jobs data, which may influence expectations regarding the Federal Reserve’s forthcoming policy decisions. In Europe, prices of longer-dated sovereign bonds experienced an increase.
On the day, those in more indebted countries, such as France and Italy, trailed the gains observed in Germany, indicative of increasing investor demand for safeguards against escalating fiscal risks. The German 10-year yield, the euro zone benchmark, decreased by 6.5 basis points on Friday, as investors opted for the relative safety of German bonds over their euro zone counterparts. Bond yields exhibit an inverse relationship with prices. In France, the 10-year yield decreased by 4 basis points to 4.89 percent, resulting in the spread between the German and French 10-year yields widening to 149 basis points, the most significant level observed since the euro zone debt crisis in 2012. “I wouldn’t call it a crisis yet, but it looks like it has the potential to be one,” said George Lagarias. “If it goes on for a couple more weeks then we’ll be talking about a crisis in the bond market.” Global bond markets have experienced a significant selloff in recent weeks, driven by the US-Israeli conflict with Iran, which has led to a resurgence in energy prices. This development complicates the inflation outlook and exacerbates the pressures on already strained public finances.
On Friday, Japan’s long-term bond yields reached multi-decade highs, while the US benchmark 10-year Treasury yield climbed to its highest level in 24 years on Thursday, in anticipation of the labour market report released on Friday. Forecasts indicate a projected increase of 90,000 nonfarm payrolls for September, with the unemployment rate anticipated to remain unchanged at 4.1 percent. A strong economic report could reignite expectations for a second interest rate increase from the Federal Reserve this month, which is currently assessed at only 25 percent likelihood following comments from two senior officials who indicated a preference for additional data before making any decisions regarding interest rates. A December move is currently fully priced in. “With the Fed now myopically focused on inflation and price pressures, a hot wages print could prove particularly influential for US rates, Treasuries and the USD,” said Chris Weston. “Risk assets have so far absorbed the rise in US real yields, and long-end nominal Treasury yields remarkably well. However, a sustained increase in term premium could be far more problematic.”
European shares experienced an uptick in early trading, as evidenced by the pan-regional index rising by 0.8%. However, it remains on track for a weekly decline of approximately 1%. Nasdaq futures exhibited an increase of 0.7 percent, while the S&P remained unspecified. Futures increased by 0.4 percent. In Asia, the broadest index of Asia-Pacific shares outside Japan, as measured by MSCI, exhibited minimal movement and is poised for a weekly decrease of 1.2 percent. Japan’s Nikkei declined by 0.9 percent, yet it recorded an increase of nearly 3 percent over the week. Mainland Chinese markets will remain closed until next Wednesday due to a public holiday. Hong Kong’s Hang Seng index experienced a decline of 2.7 per cent on Friday following its return from a holiday.
