Macron plans to summon G7 to stabilize oil prices and release reserve expectations to push crude oil back down! However, the refined oil supply crisis is difficult to resolve

The Zhitong Finance App learned that French President Emmanuel Macron spoke with US and Canadian leaders on October 2, local time, and plans to convene a G7 leaders' meeting as soon as possible to help curb the continued rise in fuel prices and focus on easing the global supply of refined oil products.

According to a statement from the French presidential office, France, which holds the rotating presidency of the G7 this year, is actively cooperating with the International Energy Agency (IEA) to coordinate measures aimed at easing price pressure and guaranteeing the supply of crude oil and refined oil products.

Macron stressed that G7 countries “act together without enforcing restrictions on energy exports, which is in the common interest.” Overall coordination at the European level is also progressing.

European countries have been holding urgent discussions to discuss how to deal with Washington's pressure to release strategic fuel reserves and avoid a possible US ban on energy exports. Faced with global market turmoil caused by geopolitical wars, Europe is using emergency oil reserves much slower than the US, so the region still has considerable reserves to release.

G7 rushed off the “energy cooling valve”! Oil prices have declined, and the pressure to guarantee the supply of refined fuel is still there

The core of Macron's promotion of G7 coordination this time is to simultaneously ease the rise in fuel prices and the tight global supply of refined oil products, and prevent export restrictions from further fragmenting the market.

France is cooperating with the IEA to coordinate measures to protect the supply of crude oil and refined oil products; recent developments show that European countries have discussed plans proposed by France: Europe will release 50 million barrels of diesel, and IEA members will release 50 million barrels of crude oil. The plan is still under discussion. The background is that the US is asking Europe to speed up the release of diesel stocks and consider limiting domestic diesel exports.

Expectations to release reserves have driven prices to cool down. At around 17:00 on October 2, Beijing time, Brent crude oil futures reported 99.48 US dollars/barrel, a significant drop of 2.77% during the day; WTI reported 89.52 US dollars/barrel, down 3.61%; European diesel benchmark futures fell more than 5% to 1,377 US dollars/ton. Based on the settlement price on February 27, the last trading day before the war broke out on February 28, the changes in crude oil futures prices in recent months are as follows: the two benchmark price trends of Brent crude oil and WTI crude oil prices have still risen sharply by about 38% and 35%, respectively. This comparison uses recent monthly futures price benchmarks at various points, which is enough to show that after the short-term decline in oil prices, energy prices are still significantly higher than before the war.

Geopolitics still presents a situation where diplomatic contacts continue and the risk of military escalation has not receded. Some media reported on October 1 that Iran is still promoting negotiations through Qatar while preparing a broader response for the possible resumption of large-scale attacks by the US; the Wall Street Journal recently revealed that the US is sending a third aircraft carrier strike group and about 9,000-10,000 personnel to the Middle East. Therefore, the current decline in oil prices reflects expectations of supply restoration and policy intervention, and cannot be equated with the war risk premium having disappeared.

From the strait to the bond market: the “fuel insurance supply line” is also a buffer line for global risk assets

Saudi Arabia's east-west pipeline is being restored, but there is still a clear distance between nominal delivery capacity and actual flow. The pipeline was restarted on September 22, and Yanbu Port then resumed shipping; as of September 29, the actual flow rate of the pipeline was about 2 million to 2.65 million b/d, below the nominal capacity of 7 million b/d. Kpler predicted at the time that it could then rise to 3 million to 4 million b/d, and that it might still take a month before the attack resumed, about 5.5 million b/d. The 7 million barrels here are transportation capacity and cannot be equated with the current increase in market supply.

Traffic is being resumed in Hormuz, and the risk of the Strait of Mander continues to limit alternative routes. At the end of September, Kpler estimated that when menstruating Hormuz, crude oil was exported about 9.719,000 barrels per day, indicating that the strait was not completely closed; however, the shipping intelligence agency reported that three tankers were still hit by unknown projectiles while crossing the border on September 29. In the direction of the Red Sea, the Houthis advanced to Perim Island in the Mander Strait in September. On October 2, Yemeni government forces also announced that they would launch 20 air strikes against Ta'iz-Houthi targets. Looking at the route, Yanbu crude oil is still at risk when traveling south to Asia; if it is transported north to Europe via Suez, there is no need to go through the Mander Strait; the two export routes cannot be confused.

More critical bottlenecks are emerging in the refining and refined oil trade links. According to the IEA's September report, global refinery processing volume decreased by 4.2 million b/d in August, and net diesel exports from the Gulf countries were only about 390,000 b/d, slightly higher than a quarter of the pre-war period. This explains why after crude oil exports improve, there may still be a shortage of diesel: when crude oil arrives in Hong Kong, it also needs to be processed in a refinery and then delivered through an unobstructed trade network. Releasing diesel stocks can directly supplement terminal fuel; the effect of releasing crude oil stocks depends on whether refining and transportation can be carried out. If major exporters restrict the export of refined oil products at the same time, domestic insurance and supply measures may further raise fuel costs in importing regions. This is the market significance of Macron's emphasis on joint action to avoid export restrictions.

This energy chain is already linked to the global bond market. The yield on US 10-year Treasury bonds once reached 5.34% on October 1, a record high since 2002, and returned to about 5.24% on the morning of October 2; the UK's 30-year yield had previously broken through 6%, for the first time since 1998, and then declined as oil prices fell. The latest trend in long-term debt can basically be summed up as a “partial recovery after years of high levels” rather than continuing to rise unilaterally. Relieving energy pressure will help improve inflation and policy interest rate expectations, but fiscal supply, actual capital demand, and term premiums will still affect long-term pricing.

This is why, according to some analysts, the “navigation restoration line” is not yet equal to the “fuel decompression line,” and the refined oil insurance supply line is also an important valuation system buffer line for global risk assets such as stocks, cryptocurrencies, and high-yield corporate bonds. Diesel costs are transmitted to prices through transportation, agriculture, and industrial production; if pressure on energy prices continues, it may continue to limit the room for monetary policy relaxation, thereby boosting the yield on long-term treasury bonds and continuing to increase the discount pressure on risky assets.