Japanese Prime Minister Sanae Takaichi said the government is weighing a plan to release about 20 days’ worth of extra oil reserves from early May, Reuters reported on Friday. The proposal is aimed at steadying domestic energy supplies.
The plan comes as shipping disruptions continue in the Strait of Hormuz, despite a recent two-week ceasefire between the United States and Iran. The disruptions have raised concerns about transport and supply routes.
Finance Minister Satsuki Katayama said there were no immediate risks of an oil shortage. She also said the government is not in a position to discuss measures against possible shortages.
Market Impact Of A Reserve Release
Japan’s plan to release oil reserves starting in May is likely to put some downward pressure on front-month crude oil futures. We see this as a signal to anticipate a short-term dip in prices, as the market will need to absorb this new supply. However, the move is a reaction to a serious geopolitical threat, not a change in fundamental demand.
The two-week ceasefire in the Strait of Hormuz is the critical factor, and we view it as extremely fragile. With roughly 20% of the world’s total oil consumption passing through that single point, any renewed conflict would send prices sharply higher, far outweighing the impact of Japan’s release. This underlying tension suggests buying longer-dated call options to hedge against a sudden price spike is a prudent move.
We are seeing a classic conflict between a short-term bearish signal (the supply release) and a long-term bullish risk (geopolitical instability). We recall how the large U.S. strategic reserve releases in 2022 only provided temporary price relief before market realities took over again. Therefore, we believe this planned release offers a brief window to enter bullish positions at a potentially lower price.
Volatility Strategy Considerations
The contradictory statements from the Prime Minister and Finance Minister create uncertainty, which typically increases options premiums. We expect oil price volatility, which hovered around an elevated 35% for much of 2025 during the initial Red Sea disruptions, to climb again as we approach May. Traders should consider strategies that profit from this volatility itself, regardless of the ultimate direction of oil prices.
Given that Japan relies on the Middle East for over 90% of its oil imports, the Prime Minister’s actions should be seen as the more credible indicator of government concern. We are advising traders to position for a dip in the next few weeks followed by significant upside risk through the summer. A calendar spread, selling a May or June contract while buying an August contract, could be an effective way to play this dynamic.
