Crude oil prices fell sharply on Friday with Brent dropping below $100 per barrel as European governments considered releasing emergency diesel and crude reserves to ease tight global fuel supplies.
Brent crude futures declined $2.83, or 2.77 percent to $99.48 per barrel in morning trading, while U.S. West Texas Intermediate crude dropped $3.35, or 3.61 percent to $89.52 per barrel.
The decline reversed part of Thursday’s rally and put both benchmarks on course for weekly losses with Brent down about 4.7 percent for the week and WTI lower by approximately 3.1 percent.
Pressure spread beyond crude oil to refined products, with European gasoil futures falling more than 5 percent to $1,377 per metric tonne as traders reacted to the possibility of additional emergency supplies entering the market.
European Union governments discussed a French proposal on Friday that could result in European countries releasing 50 million barrels of diesel from emergency inventories.
The proposal also calls for members of the International Energy Agency to release another 50 million barrels of crude oil, potentially injecting a combined 100 million barrels of crude and refined products into strained energy markets.
The discussions followed pressure from the United States for European countries, particularly France and Germany, to draw down emergency diesel inventories as high fuel prices place increasing pressure on transportation, agriculture and industrial activity.
France and Germany together account for about 35 percent of the European Union’s strategic diesel reserves, based on the latest available Eurostat figures cited by Reuters.
U.S. Energy Secretary Chris Wright had said a day earlier that he was highly confident European countries would release additional diesel stocks as governments sought to increase supply ahead of the winter heating and agricultural seasons.
Refined Fuel Shortage Drives Market
The latest price movement highlights a shift in the pressure affecting global energy markets.
While crude supplies from the Middle East have been recovering, shortages of diesel and other refined petroleum products remain a significant concern following disruptions to refining capacity and production in the Middle East and Russia.
The tightness has been compounded by China’s decision to suspend exports of refined petroleum products outside Hong Kong and Macau during October.
China is a major supplier of gasoline, diesel and jet fuel to Asian markets, including Singapore, Australia, Malaysia and other regional economies.
Expectations of reduced Chinese exports pushed Asian gasoline refining margins above $50 per barrel over Brent on Thursday, while inventories of light distillates in Singapore have fallen to their lowest level in five years.
China’s decision had initially helped drive crude prices higher on Thursday as traders anticipated tighter availability of petroleum products.
Brent surged $4.28, or 4.37 percent, to settle at $102.31 per barrel, while WTI gained $2.45 to $92.87.
That rally was also supported by heightened geopolitical concerns following reports that the United States was preparing additional military deployments to the Middle East.
Friday’s discussions over emergency stock releases changed market sentiment, however, as traders assessed the possibility that governments could use strategic inventories to provide additional near-term supply.
Oil Market Remains Volatile
Despite Friday’s decline, uncertainty surrounding Middle East supplies continues to expose crude prices to sharp movements.
Disruptions associated with the prolonged conflict involving Iran have reduced energy flows through the region and contributed to periods of severe tightness in refined petroleum products.
The Strait of Hormuz remains particularly important to the market because of the volume of global energy supplies historically transported through the waterway.
Government intervention through emergency reserves could provide temporary relief to fuel markets, particularly if substantial quantities of diesel are released.
However, strategic stock releases do not create additional refining capacity, meaning persistent constraints on the production of diesel, gasoline and other petroleum products could continue influencing prices after emergency inventories enter the market.
For Friday’s trading session, however, expectations of additional supply were enough to push Brent back below the psychologically important $100-per-barrel level and erase a significant portion of the previous day’s gains.
