Japan Petroleum Association: Need to conduct second release of oil reserves, with scale comparable to first batch of 80 million barrels

Japan Petroleum Association Calls for the Government to Launch a Second Round of Strategic Reserve Releases, Similar in Scale to the First, While Actively Seeking Alternative Supply Sources Outside the Middle East to Address Energy Security Pressures from the Ongoing Tensions in the Strait of Hormuz.

On Monday, the president of the Japan Petroleum Association stated that he hopes the Japanese government will release a second batch of strategic reserves at the same scale as the first. Previously, on March 13, the Japanese government announced the release of approximately 80 million barrels from national and private strategic petroleum reserves.

Regarding supply diversification, the association president pointed out that North America is one of the potential sources to replace Middle Eastern crude oil supplies, and believes Japan should invest in expanding Alaskan oil production capacity; Ecuador, Colombia, and Mexico are also listed as possible options.

Meanwhile, the association clearly stated that, aside from the Sakhalin 2 project, Japan has no plans to purchase Russian crude oil.

First Reserve Release Initiated, Pricing Mechanism Under Scrutiny

On March 13, the Japanese government announced that it would earliest start releasing about 80 million barrels of national and private strategic petroleum reserves next week. This crude oil will be sold based on the official selling price (OSP) set by Middle Eastern oil-producing countries before the outbreak of conflict.

OSP is usually set monthly by Middle Eastern oil producers for long-term contracts, with specific prices varying by crude grade. The pricing is determined by adjusting the differential from a benchmark crude price and considering the market supply and demand conditions for that month.

In terms of pricing implementation, Japan’s Minister of Economy, Trade and Industry, Akira Amari, has explicitly warned domestic refineries not to profit from low-priced government stockpiles and stated that the government will continue to communicate with the industry to ensure that the release proceeds in a “publicly reasonable and convincing manner,” aiming to pass on cost advantages to end consumers.

Diversification Strategy: North America and Latin America as Alternatives

Since the full escalation of the Middle East conflict, international oil prices have surged significantly. On February 27, just before the conflict fully escalated, the global benchmark Brent crude closed at $72.48 per barrel, and it has now risen to $108 per barrel. Market expectations are that if the Strait of Hormuz remains effectively closed and the situation does not ease, oil prices will face further upward pressure.

The president of the Japan Petroleum Association admitted that they never expected the Strait of Hormuz to close, as it would trigger a global energy crisis. This statement highlights the unprecedented impact of the current situation on the global energy market and underscores Japan’s urgency to accelerate supply diversification.

In response to the risk of Middle Eastern supply disruptions, the Japan Petroleum Association is actively seeking alternative sources. The association president stated that North America is one of the potential sources to replace Middle Eastern crude, and recommended that Japan invest in expanding Alaskan oil capacity to fundamentally enhance supply diversification.

Additionally, Ecuador, Colombia, and Mexico are listed as possible alternative options. Regarding Russian crude oil, the association’s position is clear—apart from the Sakhalin 2 project, Japan has no plans to purchase Russian oil.

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