© Reuters. File photo: A branch of the Cosmo Oil service station of Cosmo Energy Holdings was seen in Tokyo, Japan on December 17, 2015. The picture was taken on December 17, 2015. REUTERS/Yuya Shino/File Photo
Authors: Ritsuko Shimizu, Yoshifumi Takemoto, Aaron Sheldrick, and Nidhi Verma
Tokyo/New Delhi (Reuters)-Japanese and Indian officials are working with the United States and other major economies to study ways to release national reserves, but the timing of this release is unclear. Seven government sources who understand the plan told Reuters .
According to a source familiar with the discussion, such an announcement may be issued as early as Tuesday, but officials from the White House and the US Department of Energy said that no formal decision has been made on the issue.
US President Joe Biden has asked China, India, South Korea and Japan to coordinate the release of oil inventories because of the soaring gasoline prices in the US and his approval ratings before next year’s congressional elections have fallen.
The US government has been unable to persuade OPEC+ to produce more oil, and major producers argue that the world does not lack crude oil.
OPEC and other oil-producing countries including Russia (collectively referred to as OPEC+) add about 400,000 barrels per day to the market each month, but they resisted Biden’s call for faster production increases, believing that a rebound in demand may be fragile.
The threat of a coordinated release, as well as the new lockdown measures related to the coronavirus in Europe, have already subsided the rise in crude oil. The latest transaction price was US$79.30 per barrel, a drop of more than US$7 from the peak reached at the end of October.
Citigroup (New York Stock Exchange ticker:) Analysts estimated in a report that the United States may release 45 to 60 million barrels of oil from its reserves, which will increase approved sales by approximately 20 million barrels. The bank stated that the combined issuance volume may be “approximately 10-120 million barrels or more.”
However, a source familiar with the discussion said that the input of China and other countries is still pending, and countries such as India and South Korea may contribute a small amount of oil.
Joseph McMonigle, Secretary-General of the International Energy Forum (IEF) based in Riyadh, said that this move may force OPEC+ to reassess whether it will continue its current steady growth.
“If they are to make changes, it will be due to unforeseen external factors, such as these European blockades, any form of strategic announcements, and changes in aviation fuel demand,” McMonig said. IEF is the largest international organization of energy ministers, with members including Saudi Arabia, the United States and Russia.
The increase in COVID cases in Europe supports recent comments by OPEC Secretary-General Mohamed Barkindo and others, who stated that the market will soon face a glut. In this case, OPEC member countries that have more room to increase production may be more willing to maintain current output or even reduce output.
“SPR releases can easily backfire,” said DTN market analyst Troy Vincent.
Japanese Prime Minister Fumio Kishida said that he is ready to release stocks over the weekend.
Three Indian government sources said on Monday that they are negotiating with the United States to release oil from strategic reserves.
Japan is the world’s fourth-largest buyer of oil, and it is restricted in how to dispose of its reserves—consisting of private and public stocks—usually only in times of shortage.
A Japanese source said that the government is considering releasing some state-owned stocks that exceed the minimum requirement as a legal workaround.
Official data show that as of the end of September, Japan’s oil reserves were 145 days of daily oil consumption, which is much higher than the minimum 90 days required by law.
According to data from the state agency Jogmec, Japanese private companies, including refineries, hold approximately 175 million barrels of crude oil and petroleum products as part of the Strategic Petroleum Reserve (SPR), which is sufficient to meet consumption needs for approximately 90 days.
India holds approximately 26.5 million barrels of oil in its SPR.