Oil prices fell sharply Friday as discussions over emergency diesel and crude-stock releases eased some of the supply fears that had driven energy markets higher.
Brent crude fell $2.53, or 2.47%, to $99.78 a barrel around midday in London.
U.S. West Texas Intermediate dropped $3.32, or 3.57%, to $89.55 a barrel.
European gasoil futures, a benchmark for diesel, fell about 5%.
The reversal followed a sharp increase in oil prices Thursday after reports that Chinese refiners had suspended October fuel exports and renewed geopolitical tensions intensified concerns about global energy supplies.
Friday’s decline reflects expectations that governments could respond by releasing emergency inventories.
European governments are discussing a French proposal for a 50-million-barrel diesel release, while International Energy Agency members could potentially release another 50 million barrels of crude oil.
That prospect matters because the current energy squeeze is not simply a crude-oil problem.
Diesel supplies have been strained by refinery disruptions, Russian export restrictions and China’s decision to suspend fuel exports outside Hong Kong and Macau for October.
Governments therefore face the challenge of ensuring sufficient supplies of both crude and refined products.
Oil’s decline provides some immediate relief for financial markets.
Energy prices have become an important component of the inflation outlook, influencing transportation, manufacturing and household costs while complicating monetary policy.
A sustained drop in crude and diesel would reduce some of that inflation pressure.
But the underlying supply risks have not disappeared.
The Iran conflict continues to threaten Middle Eastern energy flows, Chinese fuel exports remain restricted and emergency inventories are finite.
Markets will therefore watch whether reserve releases are formally approved, how large they become and whether physical diesel markets respond with a sustained decline in prices.
