Tokyo January 26 2022: Japan has decided to provide subsidies for the first time in a bid to curb increases in retail prices of gasoline, kerosene, gasoil and fuel oil, as the average retail gasoline price passed the Yen 170/l threshold across the country.
Subsidies of Yen 3.40/l (3 cents/l) will be paid to refiners and oil products importers Jan. 27-Feb. 2, according to the Ministry of Economy, Trade and Industry.
The Oil Information Center announced Jan. 26 that the national average retail price for regular gasoline rose Yen 1.80/l week on week at Yen 170.20/l on Jan. 24, reaching its highest level in more than 13 years.
In November 2021, the government decided to provide subsidies of up to Yen 5/l from December 2021 to the end of March 2022 as an emergency mitigation measure when the national average gasoline price exceeds Yen 170/l. The move was planned as an effort to prevent a situation where soaring oil products prices impose a burden on the economic recovery from the pandemic.
Such a subsidy to refiners and trading houses would be the first of its kind, an official at the ministry said earlier.
“This is a grand social experiment. I do not know if the national average price can actually be maintained [at Yen 170/l], but at least the uptrend will be suppressed,” the official said.
Meanwhile, Japan’s biggest refiner ENEOS has raised the domestic wholesale base prices for the five major rack oil products by Yen 2.50/l week on week, marking a fourth consecutive increase, sources said Jan. 26.
The revised prices are effective Jan. 27-Feb. 2 for truck loads to deliver to contract wholesalers or retail gasoline stations.
Idemitsu, the second largest refiner, also notified its distributors Jan. 26 that it would raise the weekly base prices of oil products by Yen 2.50/l for the same period.
The refiners’ weekly prices are usually calculated using the daily average of the Platts Dubai and Oman crude benchmarks from Tuesday to Monday of the following week.
However, the government’s subsidy is calculated using the average of Dubai crude oil price published on the website of the Nikkei from Monday to Friday, according to METI.
It was found that there was a difference of roughly 50 cents/b between the Dubai price assessed by Platts and the Dubai price of Nikkei, according to S&P Global Platts investigation.
As refiners and METI have different indicators and periods, it is inevitable that there will be a difference.
“Refiners’ weekly base prices of oil products will increase by Yen 2.50/l from tomorrow [Jan. 27], while the subsidy will be provided by Yen 3.40 for the same period, which is Yen 0.9/l higher than that. So, the domestic spot market will decrease by Yen 0.9/l,” a refiner source said Jan. 26.
“As announced in the press release, refiners have no economic benefit because all the subsidies provided are returned to the wholesale prices. It’s the traders and consumers who will benefit.”
“Subsidies are not welcome as extra work will be added,” another refiner source said.
“The spot market has already dropped sharply … Subsidies may distort the market.”
