US demands France and Germany open diesel reserves - Reuters

The administration of US President Donald Trump has told France and Germany that they must begin releasing emergency diesel fuel reserves to lower prices on the world market. Otherwise, Washington may consider banning exports of American diesel.

Reuters reported this, citing three sources familiar with the negotiations. This is the agency's basic fact; further context is based on data from energy agencies and other sources.

Pressure on European allies increased amid record diesel price rises in the US itself. According to the US Energy Information Administration (EIA), the average retail price of diesel fuel on September 21 reached $6.529 per gallon - the highest level in the history of the observation series. As of September 28, the price has slightly decreased to $6.382 per gallon but remains near an all-time high.

Earlier, Trump has repeatedly allowed for restrictions on diesel exports from the US as one of the ways to increase fuel supply in the domestic market. At the end of September, he stated that the administration is "very seriously" considering such a step. CNBC also wrote about the risks of a possible ban.

Earlier, Trump has repeatedly allowed for the possibility of restricting American diesel fuel exports. He stated that such a step could help lower diesel prices in the US, but at the same time could push up gasoline prices, so the administration continues to evaluate various options. Previously, Kurs wrote that the US president also linked tensions in the diesel market to strikes on Russian refineries.

Now this scenario has become part of negotiations with European allies: according to Reuters, Washington has warned France and Germany that it may move to restrict exports if they do not begin using their emergency diesel reserves.

The world market's problems themselves have a wider set of causes, including reduced supplies from Russia and the Middle East and the strained operation of the global refining industry.

The situation in the US remains tense not only due to prices. The EIA forecast a drop in American distillate inventories, which include diesel, below 100 million barrels and keeping them below the five-year minimum until the end of 2026 and for a significant part of 2027. High world prices at the same time stimulate American refineries to send more fuel for export.

The US is one of the key suppliers of diesel to foreign markets. In July, American distillate exports averaged about 1.75 million barrels per day, with the bulk of shipments going from the Gulf of Mexico coast.

For Europe, a possible American ban creates a special risk. After refusing Russian oil products and disruptions in supplies from the Middle East, the role of the US in European diesel imports has significantly grown. According to estimates cited by Western media, American fuel recently provided about half of European diesel imports.

What could be the consequences of an export ban

In the short term, export restrictions could indeed increase the amount of diesel available to American consumers and temporarily lower domestic prices. Goldman Sachs estimated a potential initial drop of about 4%. At the same time, European wholesale prices, according to the bank's estimate, could rise by about 2%. Releasing strategic reserves in Europe could partially mitigate this effect.

However, a prolonged ban may have the opposite result even for the US. If diesel tanks begin to fill up, American refinery margins will decrease, and it may become more profitable for plants to reduce oil refining. Since diesel, gasoline, and jet fuel are produced simultaneously within one refining process, reducing refinery utilization will cut the supply of other fuels as well. Goldman Sachs assumes that the problem with available storage capacity may become significant about nine to ten weeks after a full ban takes effect.

For Europe, the consequences may be more tangible: the disappearance of large American volumes will force buyers to compete for diesel from other regions, which will push up prices for transport fuel, logistics, and ultimately goods. This risk becomes especially sensitive on the eve of the winter season.

The use of emergency reserves by France and Germany could quickly give the market additional physical volumes without disrupting international trade flows. However, this is only a temporary solution: strategic reserves are intended precisely for supply crises, so a significant reduction will simultaneously reduce Europe's cushion in case of a new escalation.

The International Energy Agency already warned in September that the global refining system is operating under serious strain, and global oil and petroleum product inventories have fallen by more than 500 million barrels since the start of the Middle East war. In March, IEA countries already agreed to the largest collective release in history - 400 million barrels from emergency reserves.

Thus, Washington's proposal actually implies two different ways to increase diesel supply: either Europe temporarily uses strategic reserves, or the US holds back part of its exports for the domestic market. The first option weakens Europe's reserve buffer, while the second could further exacerbate the global market deficit and, if applied for a long time, create problems for American refineries themselves.

Based on materials from: Reuters, EIA, S&P Global