In the last week of 2021, the Japanese government finally took action and joined the global sell-off of crude oil reserves.
According to media reports, Japan’s Ministry of Economy, Trade and Industry has issued a government tender document to provide reserves of Oman crude oil. The crude oil is currently stored in Shibushi City, Kyushu, and the scheduled delivery date is from March to June next year. Government officials said in interviews with the media that this move is also part of Japan’s plan to sell reserves in collaboration with other crude oil consuming countries, and more actions will follow.
According to government documents, the supply volume of the first batch of tenders is 100,000 kiloliters (approximately 628,900 barrels). The Japanese government also stated in another statement that there will be further actions in the future and will pay close attention to the crude oil market dynamics.
After the Biden administration announced the sale of 50 million barrels of oil reserves last month, Japanese Prime Minister Fumio Kishida quickly stated that he would release 4.2 million barrels of “excess” crude oil reserves, equivalent to 1-2 days of domestic demand. The reason for emphasizing “excess” is that Japanese law stipulates that reserves can only be released when there is a possibility of supply interruption or a disaster occurs, and excess crude oil is not affected by this regulation.
According to Japanese media reports, the reason for the “surplus” is that Japan’s domestic demand for crude oil has decreased, so the government can fulfill its commitment to sell off when renewing the crude oil stored in the warehouse in earlier years. As of the end of September, Japan’s official crude oil reserves reached 280 million barrels, enough to support domestic consumption for 145 days, and private sector reserves also had 170 million barrels. It is reported that Japan has released private sector reserves during the Gulf War, the Great East Japan Earthquake and the Libyan crisis in the last century, but this is the first time it has used national reserves.
Similar to the United States and South Korea last week, Japan’s storage dumping is only equivalent to the crude oil consumed domestically in just a few days. It will at most serve to lubricate market supply and demand and is unlikely to have a fundamental impact. At the same time, this also indicates that consumer countries such as India that have committed to dumping reserves will adopt similar strategies.
The international crude oil market did not react much to the news, with Brent crude oil futures trading flat on Monday. However, the target fell by about 7% after the news of joint reserve selling by various countries was announced, but most of the decline was caused by the impact of the Omicron virus.
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