Emergency EU oil meeting focused on securing diesel supply

European Union officials discussed diversifying oil stocks and creating a buffer for diesel and gasoil during an emergency meeting of the bloc’s oil coordination group, one told Reuters.

Friday’s meeting was called by the EU commissioner for energy Kadri Simson to assess potential supply risks in case the Israel-Hamas conflict triggers a broader regional one.

“Oil is important. Not enough diesel could lead to strikes. We don’t want our trucks queuing for diesel,” the official said, adding: “Is this a 1973 moment or not?”

This month’s conflict in Gaza has revived memories of the 1973 oil shock during the Yom Kippur War, when the Organization for Petroleum Exporting Countries (OPEC) slapped an oil embargo on western supporters of Israel, triggering fuel shortages.

The meeting of the EU’s oil coordination group concluded that the risks are much lower than 50 years ago as Europe only relies on oil for about 30% of its energy mix, although Saudi Arabia is one of its top three suppliers, the official said.

“A possible crisis would have an immediate impact on price but it’s less of a security of supply risk, though the market is very tight because of OPEC+ cuts, tightness should ease in 2024,” the official added.

“The Middle East route is still of significant importance for Europe … 20 million bpd (barrels per day) goes through Hormuz. It is a real choke point,” the official said.

Each day around a fifth of daily global demand is shipped through the Strait of Hormuz. Western powers are nervous of an escalation that could lead to a blockade or increase the dangers of sailing through the narrow passage, where Iran has attacked and seized tankers in the past.

While EU oil stocks currently meet a 90-day requirement, the official said, they are mostly in crude, whereas Europe’s vulnerability is in diesel and gasoil. More than 50% of the bloc’s goods transportation relies on trucks using diesel.

According to an EU directive, member states must have emergency oil stocks equivalent to 90 days of net imports, or 61 days of consumption.

The EU group last met in June, but was convened on Friday to discuss oil security ahead of winter given the 27-member bloc has already lost nearly all its Russian gas and oil supplies.

Gasoil is used in heating, particularly since the loss of most Russian gas, while jet fuel demand continues to rise.

“The message was to have a more diversified composition of stocks and a buffer for diesel and gasoil,” the official said.

“The continued crude oil export cuts by OPEC and Russia, the conflict in Azerbaijan, and the Hamas attacks on Israel and its potential spill-over into the region are putting global oil supplies at risk,” Simson said in remarks seen by Reuters.

“Furthermore, there are still some Member States that are importing Russian crude oil by pipeline and which can make them vulnerable to further Russian manipulation,” Simson said.

Simson also raised Russia’s ability to circumvent the $60 a barrel oil price cap imposed by the G7 using “shadow fleets”.

The official said Russia was selling oil mainly to India and China but instead of the significant discounts seen up to the summer, it is now selling at close to parity with Brent oil, currently trading at close to $90 a barrel.

The meeting included representatives for EU member states, the International Energy Agency (IEA) and industry associations including refiners, fuel supplies and storage operators. 

[Reuters]