Secret negotiations underway: A solution is being sought for the price of diesel

Europe is frantically looking for ways to lower the price of gasoline and diesel, while the Middle East crisis, Russia’s illegal war and uncertainty about the US energy policy tighten the market.

Regarding diesel in particular, possible actions by the United States to limit diesel exports are causing concern.

The United States is the EU’s largest single supplier of diesel. In August, the United States delivered approximately 420,000 barrels of diesel to EU countries and Britain, which accounted for more than half of the region’s monthly diesel imports.

President Donald Trump and his administration have been considering various ways to lower the price of diesel in the United States. One option has been to limit exports to Europe for three months.

Trump said on Wednesday, according to Politico, that no decision on the export ban has been made yet. US Secretary of Energy Chris Wright has taken a critical view of the export ban. According to him, measures are also coming from Europe that will increase the supply of diesel on the market.

“You’re going to hear announcements from our friends in Europe about new diesels coming to market that will significantly lower the price of diesel,” Wright said, according to Politico.

According to media reports, the United States has asked European governments to release diesel from their strategic reserve stocks onto the market.

High-level negotiations

Commission spokesperson Anna-Kaisa Itkonen on Thursday did not directly agree to confirm the information on the US request to release the reserve stocks.

Itkonen only stated that communication between the EU and the United States is close.

“We are currently having high-level discussions with the US administration,” Itkonen said.

The Commission is also in close contact with the Member States to coordinate future actions.

The International Energy Agency (IEA), which has a meeting on Friday, will decide on the possible release of oil stocks.

The Commission’s role is to coordinate the position of the EU member states in the IEA.

“A meeting will be held tomorrow, and after that we will take the necessary measures,” Itkonen said.

3 months stocks

According to the Oil Stocks Directive, EU countries must keep strategic oil stocks in an amount equivalent to at least 90 days’ consumption, but member countries can have much larger backup stocks.

The directive does not directly determine how much crude oil, gasoline, kerosene, aviation fuel or diesel must be in the stocks, but it is left to the discretion of the member countries.

For example, Finland maintains stocks clearly larger than 90 days, especially for aviation fuel.

The Oil Stocks Directive also controls how stocks are released, i.e. the IEA gives a recommendation on how much each member should release their stocks, but stock releases are voluntary for the member countries.

Strategic oil stocks were last released in April.

The situation is different in Finland

According to the commission’s source, Finland has made it clear that, in principle, it does not want to participate in possible joint stock distribution solutions, because in Finland oil stocks are considered a means of national security of supply.

According to information from Kauppalehti, the Commission is aware that Finland’s security environment differs from many other EU member states.

Therefore, Finland’s desire to hold on to its own energy reserves is also seen by the Commission as a security of supply issue, in which case it is not an obstacle to common European solutions.

Price not availability crisis

According to a recent assessment by the Oil Coordination Group, there is currently no diesel availability problem in the EU. The Commission also confirmed on Thursday that emergency and strategic stocks of diesel in Europe are still at a high level.

According to the commission, it is a fuel affordability crisis: the war in Ukraine, the situation in the Middle East and the closure of the Strait of Hormuz all contribute to high energy prices.

“That’s why it’s important to address the root causes of these problems,” said the Commission’s chief spokesperson Paula Pinho.

Many energy sector authorities and analysts have estimated that reserve stocks should not be used to contain prices, but in a real supply crisis.

From Europe’s point of view, the situation is difficult, because the EU has few opportunities to directly influence the world market prices of fuels. The price of oil is largely influenced by OPEC, which regulates the amount of oil entering the market.

In addition, refineries and fuel distributors are private companies, so the EU has no authority to determine their pricing.

At the same time, member countries are under increasing pressure to do something quickly, especially when elections are held in many countries next year and high fuel prices have become a significant political issue.

Tax reductions and support measures

Already in April, the Commission approved temporary relaxations (METSAF), which give member countries more opportunities to support sectors affected by energy prices. The measures concern agriculture, fishing, transport and energy-intensive industry in particular.

According to a Commission source, the October European Council can discuss whether member states could be given more room to lighten fuel taxation, without treating their public finance deficits as strictly as usual.

“Taking account of the deficits is possible. This will almost certainly be part of the discussions at the October summit,” a commission source estimated.

Another way could be a temporary reduction of the value added tax. However, the Commission’s line so far has been, in accordance with the current regulations, that no VAT reductions are allowed for transport fuels.

Therefore, it is considered a more realistic option for the member countries themselves to reduce fuel excise taxes within the framework of EU standards.

Many member countries have already resorted to various tax solutions and national subsidies.

For example, France distributes fuel subsidies to those who need a car for work, and has continued support programs for agriculture, fishing and the construction industry, for example.

Fuel tax reductions are also in effect in Germany, which are estimated to reduce the price of gasoline and diesel by approximately 17 cents per liter until the end of the year. Fuel taxation has also been reduced in Spain, Sweden, Croatia and Hungary.

In some EU countries, such as Luxembourg, Belgium, Croatia and Malta, a government-regulated maximum fuel price system is in force.