Japan to Release Both Government and Private Oil Reserves to Stabilize Gasoline Prices

The Financial News, Tokyo — In response to growing energy supply risks stemming from instability in the Middle East, the Japanese government will begin selling state oil reserves to domestic oil refiners in late October. It also plans to lower mandatory stockpile requirements for companies, paving the way for the release of private-sector reserves.
According to the Nikkei (Nihon Keizai Shimbun) on the 13th, the government of Japan intends to sell national oil reserves through negotiated contracts starting later this month.
Minister of Economy, Trade and Industry Ryosei Akazawa said at a press conference that day, "We are assuming domestic oil refiners as the main buyers."
The government is also moving to release private-sector reserves. To that end, it plans to revise the enforcement notice under the Petroleum Stockpiling Act on the 16th, cutting companies’ mandatory stockpiling period from the current 70 days to 55 days.
Once the obligation is eased, private operators such as refiners will be able to supply to the market any inventories that exceed the new standard. Akazawa stated, "By making use of the more flexible private reserves, we will enable a swift initial response."
The move comes amid growing concern that the blockade of the Strait of Hormuz, a vital route for energy shipments, could drag on following attacks on the Islamic Republic of Iran by the United States of America (US) and Israel. Japan relies on the Middle East for about 90% of its crude oil imports, making it highly sensitive to any potential disruption in supply.
Akazawa also pledged, "The government will work with private companies to secure alternative sources of supply," announcing plans to diversify crude procurement to the United States of America (US), Latin America and other regions.
Earlier, on the 11th, the Japanese government decided to release the equivalent of one month of national oil reserves and 15 days of private-sector reserves to ease concerns over fuel supply. The measure will be carried out in coordination with the International Energy Agency (IEA), and the total release is expected to reach up to about 80 million barrels.
As of the end of December last year, Japan’s combined oil reserves held by the government and the private sector were sufficient for roughly 254 days of consumption.
However, some analysts warn that if the blockade of the Strait of Hormuz continues for an extended period, such releases of reserves will amount to little more than a stopgap measure to buy time.
The Asahi Shimbun noted, "Securing crude oil from regions outside the Middle East is a key challenge," suggesting that the United States of America (US) and Brazil could be among the candidates. However, it added that if countries around the world face shortages in oil supply, it will be difficult for Japan to diversify its import sources in a short period of time.
There is also concern that the subsidy fund is limited and could be depleted within a month or two.
According to Tokyo Shimbun, Mizuho Research & Technologies estimates that if the retail price of gasoline rises to 200 yen (about 1,867 won) per liter and the government has to provide a subsidy of 30 yen (about 280 won) per liter, the 280 billion yen fund would be exhausted in just over a month.
Tokyo Shimbun also reported, "If tensions in the Middle East persist and higher subsidies lead to increased fiscal spending, the Japanese yen will weaken, crude procurement costs will rise, and gasoline prices will climb even further."

sjmary@fnnews.com Seo Hye-jin Reporter