Japanese and Indian officials are working on ways to release national reserves of crude oil in tandem with the United States and other major economies to dampen prices, seven government sources with knowledge of the plans told Reuters.
US President Joe Biden has asked China, India, South Korea and Japan for a coordinated oil stocks release as US gasoline prices soar and his approval ratings slump ahead of next year's mid-term congressional elections.
Such an announcement could come as early as Tuesday, according to a source familiar with the discussions, but White House and U.S. energy department officials said no official decision on a release had been made.
The U.S. government has been unable to persuade OPEC+ to pump more oil, with major producers arguing the world was not short of crude.
OPEC and other producers including Russia, known collectively as OPEC+, have been adding around 400,000 barrels per day to the market on a monthly basis, but have resisted Biden's calls for more rapid increases, arguing the rebound in demand could be fragile.
The threat of a coordinated release, along with new coronavirus-related lockdowns in Europe, has knocked the wind out of crude oil's rally. Brent crude was lately trading at $79.30 a barrel, down more than $7 from a peak reached in late October.
It is unclear how much oil the combined group would release into the market, but Citigroup analysts estimated Friday it could come to 100 to 120 million barrels, a bit more than one day of global oil consumption. The United States would release the largest amount, at anywhere from 45 million to 60 million barrels, Citi said.
Such a move could compel OPEC+ to also reassess whether it would continue its current course of steady increases in the market, said Joseph McMonigle, Secretary General of the Riyadh-based International Energy Forum (IEF).
"If they are going to make a change, it will be because of unforeseen external factors, such as these lockdowns in Europe, any kind of strategic release, and shifts in jet fuel demand," said McMonigle. The IEF is the largest international organization of energy ministers and includes Saudi Arabia, the United States and Russia.
Japanese Prime Minister Fumio Kishida signalled his readiness to release stocks over the weekend.
Three Indian government sources said on Monday they were holding consultations with the United States on the release of oil from strategic reserves.
Japan, the world's fourth-biggest oil buyer, is restricted on how it can act with its reserves - made up of both private and public stocks - which typically can only be used in times of shortage.
One Japanese source said the government was looking into releasing from the portion of the state-held stocks outside the minimum amount required as a legal workaround.
Japanese officials are also looking at private stocks that are part of the national reserve, which some advisers argue can be released without restrictions, a second source said.
Japan's oil reserve held 145 days' worth of daily petroleum consumption at the end of September, according to official data, well above the minimum 90 days required by law.
Japanese private companies including refiners hold about 175 million barrels of crude and oil products as part of the Strategic Petroleum Reserve (SPR), enough for around 90 days' consumption, according to state agency Jogmec, also exceeding the minimum 70 days' requirement.
India holds about 26.5 million barrels of oil in its SPR.