Japan is considering releasing oil from its strategic stockpiles, joining China and the US in a coalition of consumers that wants to tame a surge in energy prices that’s triggered a jump in inflation.
“We are reviewing what steps we could act on, taking into consideration potential cooperation with related countries including the US,” Prime Minister Fumio Kishida told reporters on Saturday.
After the OPEC+ cartel of oil producers rebuffed calls to produce more oil, US President Joe Biden has sought to build international support for using consuming countries’ stockpiles to bring down prices that reached a 7-year high of $85 a barrel in late October. Higher energy costs are contributing to accelerating price rises across the global economy, putting pressure on politicians and central banks to act.
Earlier this week, China said it was working on a release from its strategic reserves, the second this year, after President Xi Jinping discussed energy during a virtual summit with Biden. With Japan on board, three of the world’s four largest oil consumers are now considering the move, a significant diplomatic win for the US and a challenge to the grip Saudi Arabia, Russia and other OPEC+ producers have on the market.
Kishida’s remarks came after he unveiled a 56 trillion-yen ($491 billion) fiscal package Friday, which included support for businesses struggling with rising fuel prices. Such steps are viewed as an attempt to bear some of the burden as high crude prices flow through into the cost of gasoline, diesel and fuel to heat homes.
One option includes selling a portion of the oil reserves and using the funds generated as subsidies to curb rising gasoline prices, the Asahi newspaper reported yesterday. The government is also mulling the possibility of reducing the number of days oil reserves are supposed to last, Asahi said.
Currently, the government is required to keep an oil reserve that is enough to last at least 90 days, while those held in the private sector need to last at least 70 days, according to the Asahi report.
The Biden administration has said it’s considering to release oil from the US strategic petroleum reserves as part of a range of measures to bring down surging gasoline prices, which have been weighing on the president’s approval rating. Last week, the president asked the Federal Trade Commission to investigate whether market manipulation was contributing to the level of gasoline prices.
Still, oil prices have fallen in recent days, tumbling almost $3 a barrel in New York on Friday, partly because the threat of inventory releases has unnerved investors, but also due to the possible impact on demand from resurgent coronavirus infections. That may relieve some pressure on Biden to follow through, at least in the short term.
The emerging coalition of oil producers considering action will play into the deliberations of OPEC+ ministers, who hold their next meeting in early December.