Oil falls $2 as Europe agrees to release diesel reserves after Trump push

Oil prices fell $2 after European leaders agreed on Friday to a request by US President Donald Trump to release diesel from their reserves to lower prices and reduce the need to import fuel from America.

Brent was down $1.80, or 1.76 per cent, at $100.50 a barrel at 10:49 a.m. CDT (1649 GMT). West Texas Intermediate dropped $2.02, or 2.18 per cent, to $90.85 a barrel.

For the week, Brent was down about 2.84 per cent so far, with WTI around 1.54 per cent lower.

European Union countries agreed to a French proposal to release additional diesel stockpiles, a source familiar with details of the discussion told Reuters.

"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 said he was mulling a ban on US diesel exports.

"Europe is feeling pretty vulnerable," said Phil Flynn, senior analyst with the Price Futures Group. "Europe would be one of the areas to suffer the most if we put an export ban on diesel."

FRENCH PROPOSAL

EU governments acted after discussing the proposal by France for European countries to release 50 million barrels of diesel, and for Energy Agency members to release 50 million barrels of crude oil, three sources familiar with the discussions told Reuters.

Under the proposal, Europe would release part of the diesel volumes in a 20-day period, two of the sources said.

French President Emmanuel Macron chaired a videoconference with G7 leaders on Friday, the Elysee Palace said. It was not immediately clear if G7 countries had agreed to France's proposal on the volumes 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, head of commodity strategy at Saxo Bank.

On Thursday, prices settled higher after Reuters reported that Chinese refiners had suspended oil product exports for October, looking to preserve domestic stocks. Also supporting prices, the Wall Street Journal reported that the US was sending a third aircraft carrier and up to 10,000 more troops to the Middle East as Trump weighed resuming strikes on Iran after the midterm elections.

Hamad Hussain, senior climate and commodities economist at Capital Economics, said 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 said in a note that despite better crude flows out of the Middle East, physical market fundamentals remained strong, with inventories still being drawn, and prompt cargoes commanding steep premiums over forward prices. It raised its fourth-quarter Brent forecast by $20 a barrel to $115 and lifted its 2026 forecast to $100 a barrel.

Elsewhere, Ukraine has struck oil facilities in Russia's Samara and Volgograd regions over the past 24 hours, President Volodymyr Zelenskiy said on social media on Friday.

In Europe, longer-dated sovereign bond prices rose ??on the day, although those in more indebted countries, like France and Italy, lagged the gains in Germany, reflecting growing investor demand for protection against rising fiscal risks.

The German 10-year yield, the euro zone benchmark, was down 6.5 basis points (bps) on Friday, as investors preferred the relative safety of German bonds compared to their euro zone counterparts. Bond yields move inversely with prices.

In France, the 10-year yield was down 4 bps at 4.89 per cent, pushing the gap between the German and French 10-year yields as wide as 149 bps, the widest level 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, chief economist at Forvis Mazars.

“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 been under a relentless selloff in recent weeks as the US-Israeli war with Iran pushed up energy prices again, complicating the inflation outlook and further straining already stretched public finances.

Japan’s long-term bond yields hit multi-decade highs on Friday, while the US benchmark 10-year Treasury yield rose to its highest level in 24 years on Thursday, ahead of Friday’s labour market report.

Forecasts are centred on a gain of 90,000 nonfarm payrolls in September, while the unemployment rate is expected to be steady at 4.1 per cent.

A hot print could revive bets on a second rate rise from the Federal Reserve this month, currently priced at just 25 per cent after two top policymakers said this week they wanted more data before deciding what to do next with interest rates. A move in December is still 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, head of research at Pepperstone.

“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 rose in early trade, with the pan-regional STOXX 600 index up 0.8%, although it is still heading for a weekly drop of about 1%. Nasdaq futures were up 0.7 per cent and S&P ??500 futures gained 0.4 per cent.

In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan was little changed and was on track for a weekly decline of 1.2 per cent. Japan's Nikkei dropped 0.9 per cent but gained almost 3 per cent for the week.

Mainland Chinese markets are closed through next Wednesday for a public holiday. Hong Kong's Hang Seng index slid 2.7 per cent on Friday after returning from a holiday.