Seven government sources with knowledge of the plan told Reuters that Japanese and Indian officials are working with the United States and other large economies to study ways to release national crude oil reserves, but the timing of this release is still unclear.
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+-OPEC and other oil-producing countries including Russia, collectively referred to as OPEC+-to produce more oil. Major oil-producing countries argue that the world does not lack crude oil.
OPEC+ adds about 400,000 barrels of oil to the market every month, but resists Biden’s call for a more rapid increase, thinking that the 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 last trading price of Brent crude oil was US$79.30 per barrel, a drop of more than US$7 from the peak reached at the end of October.
Citigroup analysts estimated in a report that the United States may release 45 to 60 million barrels of oil from its reserves, which would increase approved sales by approximately 20 million barrels. The bank stated that the total release could 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, and its members include Saudi Arabia, the United States and Russia.
The increase in COVID cases in Europe supports the 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.
Troy Vincent, a market analyst at analytics and technology company DTN, said: “SPR (Strategic Petroleum Reserve) releases can easily backfire.”
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 oil buyer and 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 a legal workaround to release some of the crude oil in state-owned inventories beyond the minimum quantity requirement.
According to official data, 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 the state agency Jogmec, Japanese private companies, including oil 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 has approximately 26.5 million barrels of oil reserves.