Japan Plans to Release 80 Million Barrels of Oil Next Week, Selling at Pre-Middle East Conflict Prices

The Japanese government announced that it will earliest next week begin releasing approximately 80 million barrels of national and private strategic petroleum reserves. These crude oil releases will be sold based on the Official Selling Price (OSP) used by Middle Eastern oil-producing countries before the outbreak of the conflict.

On February 27, just before the full escalation of the Middle Eastern conflict, the global benchmark Brent crude settled at $72.48 per barrel. Since the conflict began, prices have continued to rise and have now reached $101 per barrel. The market generally expects that if the Strait of Hormuz remains effectively closed and the situation does not ease, oil prices will face further upward pressure.

In this context, the OSP, which serves as the pricing benchmark for Japan’s release, has attracted significant attention. Typically, Middle Eastern oil producers set the OSP monthly for long-term contracts. The specific price varies depending on the grade of crude oil. It is determined by adjusting the differential based on the benchmark crude price and considering the supply and demand conditions in the market that month.

Japan’s Minister of Economy, Trade and Industry, Yasutoshi Nishimura, explicitly warned domestic refineries on Friday that they must not profit from buying the national reserves at low prices. He stated that the government will continue to communicate with the industry to ensure that this release proceeds in a “publicly reasonable and convincing manner,” aiming to pass on the cost advantages to end consumers.

Meanwhile, Nishimura indicated that there is room to export refined products processed from the reserves. He said that if domestic demand is insufficient, “this measure does not prohibit exports,” leaving Japan’s policy flexibility intact amid the global supply tightness.

This unilateral action by Japan is coordinated with the International Energy Agency’s (IEA) plan to release 400 million barrels from emergency reserves. The IEA has characterized this energy crisis triggered by the Iran conflict as the largest supply disruption in the history of the global oil market. If the Strait of Hormuz remains effectively closed and the conflict is not quickly resolved, there is a risk of further significant increases in oil prices.

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