By Utai Hatani, economic news department
The impact on Japan’s domestic supply will likely be limited as Japan is expected to soon resume importing oil from Saudi Arabia, which accounts for 40% of Japan’s total oil procurement. On Sept. 18, crude oil futures for delivery in February 2020 fell about 5.3% on the day to 39,110 yen per liter in the Tokyo market.
But the situation in the Middle East is projected to remain volatile for the time being. Japan’s heavy reliance on the Middle East oil has once again been thrust into the spotlight.
The situation in the Middle East has a major impact on the global energy supply because Saudi Arabia, Iran, and other Middle Eastern nations command about 30% of global oil output. Japan is particularly susceptible to the Middle Eastern situation as it imports 90% of its oil from the region.
Japan stockpiles enough oil for 236 days of domestic consumption to prepare itself for the possibility of a suspension of its oil supply from overseas. It has thus far released its oil reserves on a total of five occasions, such as the second oil crisis in 1979, the Gulf War in 1991, and the Great East Japan Earthquake in 2011. A senior official at the Agency for Natural Resources and Energy says, “We maintain sufficient stockpiles.”
From a medium- to long-term perspective, Japan needs to diversity its procurement sources. But cutting its reliance on the Middle East would be difficult. Meanwhile, the U.S. is increasing its shale oil output, and last year it became the world’s largest shale oil producer. But U.S. shale oil accounted for less than 2% of Japan’s total energy imports in 2018. This is probably because it takes longer to transport oil from the U.S. and Japanese oil wholesalers’ refinery facilities were built with Middle Eastern oil in mind.
“The impact was limited this time, but concerns have emerged over structural problems related to securing a stable supply from the Middle East,” said Reiji Ogino, a senior analyst at Mitsubishi UFJ Morgan Stanley Securities Co. “Japan may need to broaden its sources of oil procurement beyond the Middle East and consider increasing oil imports from countries such as the U.S. and Russia.”