November 26, 2021 at 16:25 JST
The national oil stockpile base in Tomakomai, Hokkaido (Kotaro Ebara)
The government has decided to release Japan’s state oil reserves for the first time ever. The decision has been made in response to a U.S. call for concerted actions to lower soaring oil prices.
China, India and other major oil-consuming nations have also responded to Washington’s initiative, based on the argument that a supply shortage has driven up crude oil prices and kept them at high levels.
Since Japan’s Petroleum Reserve Law does not cite higher prices as a rationale for releasing the state oil reserves, there is no denying that the government’s move is legally questionable.
The Ministry of Economy, Trade and Industry has claimed that the action is not aimed at curbing oil prices. But this seems to deviate from the truth.
The government should offer an honest explanation about the decision and initiate Diet debate on the current oil reserve system for a possible change if it is out of tune with the times.
As the world economy is recovering from the downturn caused by the new coronavirus pandemic, oil-consuming nations are facing the threat of costlier oil, which could knock their economies off the recovery path.
In the United States, gasoline prices have hit seven-year highs, delivering a blow to President Joe Biden’s approval ratings.
Alarmed by the situation, the Biden administration has announced that it will release 50 million barrels of crude oil from strategic reserves over the course of several months to push down crude oil prices in coordination with Japan and other nations.
Tokyo has said it will sell several million barrels in the market. But these amounts only represent the equivalent of a few days of U.S. and Japanese demand. The coordinated action will have only a limited impact on the market.
Moreover, the Japanese government has so far explained it will tap into its strategic oil stockpiles only in the event of a major disruption in the domestic supply of oil due to such reasons as war or a large-scale natural disaster.
In an apparent attempt to maintain consistency with this policy, the METI stresses that the objective of the release is to replace old oil inventories with new ones, while admitting that the action will be taken ahead of schedule to time it with the moves of other nations.
The government’s policy actions must naturally be based on the law. But it is also true that international coordination is crucial for dealing with the negative effects of soaring oil prices. No single country can effectively influence the oil market.
When it decided to provide state subsidies to domestic oil wholesalers to stem the rise of oil prices, however, the METI expressed skepticism about the possibility of dipping into oil reserves, saying there are measures it cannot legally take.
While claiming the planned release will be aimed at renewing oil inventories, the ministry has no plan to buy fresh oil to replenish the reserves. It needs to offer a detailed explanation about the policy change.
The national oil reserves equaled 145 days worth of domestic demand as of the end of September, exceeding the established target by more than 40 days.
As the total volume of the oil reserves has remained little changed despite sagging daily consumption due to energy-saving efforts, the buffer against possible shortages has become greater.
As the world moves toward a carbon-free future, demand for oil is expected to continue waning. The government needs to rethink its oil stockpiling strategy by focusing on such issues as the volume of reserves that should be kept in the coming years and in what situations they should be drawn out.
Soaring oil prices reflect a growing imbalance between supply and demand. While the world is still dependent on oil for much of its energy consumption, investment in oil production facilities has been delayed and reduced in anticipation of a growing trend toward reducing the global carbon footprint.
It is crucial for oil consumers and producers to work together to map out a strategy for riding out the transition period.
--The Asahi Shimbun, Nov. 26
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