Japan Petroleum Association: A second release of oil reserves is necessary, with a scale comparable to the first batch of 80 million barrels.

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The Japan Petroleum Association is urging the government to launch a second round of strategic reserve releases, at a scale similar to the first batch, while actively seeking alternative supply sources outside the Middle East to address the energy security pressures posed by 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 start of releasing about 80 million barrels from national and private strategic oil reserves.

Regarding supply diversification, the association’s president pointed out that North America is one of the potential alternatives to Middle Eastern crude supplies, and suggested Japan invest in expanding Alaska’s crude oil capacity; Ecuador, Colombia, and Mexico were also listed as possible options.

Meanwhile, the association made it clear that, except for the Sakhalin 2 project, Japan has no plans to purchase Russian crude oil.

First Release of Reserves Launched, Pricing Mechanism Under Scrutiny

On March 13, the Japanese government announced that it would begin releasing about 80 million barrels of national and private strategic oil reserves as early as next week. This crude will be sold with reference to the official selling prices (OSP) of Middle Eastern oil producers prior to the outbreak of the conflict.

The OSP is typically set monthly by Middle Eastern oil producers for long-term contracts, with specific prices varying by crude grade, and is determined by adjusting the spread based on a benchmark crude oil price, and comprehensively considering market supply and demand conditions for the month.

At the level of pricing implementation, Economy, Trade and Industry Minister Ryosei Akazawa has issued a clear warning to domestic refiners not to profiteer from low-priced national reserve crude, saying the government will continue to communicate with the industry to ensure this release is carried out "in a way the public finds reasonable and convincing," aiming to pass cost advantages on to end consumers.

Diversification: North and Latin America as Alternative Options

Since the escalation of the Middle East conflict, international oil prices have surged. On February 27, just before the full escalation, the global benchmark Brent crude closed at $72.48 per barrel, and has now risen to $108 per barrel. The market widely expects that if the Strait of Hormuz remains effectively closed and the situation does not ease, oil prices will continue to face upward pressure.

The president of the Japan Petroleum Association admitted that he had never anticipated the closure of the Strait of Hormuz, as this would trigger a global energy crisis. This statement highlights the unexpected magnitude of the current situation's impact on the global energy market, and further demonstrates Japan's urgency to accelerate supply diversification.

In the face of risks of disruption to Middle Eastern supply, the Japan Petroleum Association is actively seeking alternative sources. The association’s president said that North America is one potential alternative to Middle Eastern crude oil, and suggested Japan invest in expanding Alaska’s oil production capacity to fundamentally enhance diversity of supply sources.

In addition, Ecuador, Colombia, and Mexico were also listed as possible alternative options. On the issue of Russian crude, the association’s position is clear—except for the Sakhalin 2 project, Japan has no plans to purchase Russian crude oil.

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