Japanese oil demand contracted at the slowest pace in 10 months, by 82 thousand b/d y/y to 3.33 mb/d in July. A searing heatwave in July (CDDs higher by 3% y/y) and a glitch in Kyushu Electric’s 700 MW coal plant led to the first y/y growth in fuel oil demand in over three years by 21 thousand b/d to 0.25 mb/d. Direct crude burn for power generation also contracted at the slowest pace in eight months, by 33 thousand b/d y/y to 55 thousand b/d. Temperatures in August were mostly higher than normal, which will likely keep fuel oil demand elevated. LPG demand was up by 26 thousand b/d y/y to 0.42 mb/d (mainly due to butane) although this came at the expense of naphtha as a petrochemical feedstock, which declined by 67 thousand b/d y/y to 0.7 mb/d. Gasoil demand improved marginally to 0.57 mb/d in line with improving manufacturing PMI, which rose to a five-month high of 49.3. Transportation fuels however, took a tumble in July with gasoline demand slipping by 17 thousand b/d y/y and jet demand lower by 11 thousand b/d y/y. Kerosene demand was largely flat y/y, at 89 thousand b/d.
Refinery runs rose by 16 thousand b/d y/y (slowest growth in five months) to 3.19 mb/d in July as Japanese refineries continue to raise product exports, which increased by 56 thousand b/d y/y (led by fuel oil and gasoline, up by 36 thousand b/d y/y and 22 thousand b/d y/y, respectively). Crude imports declined by a massive 0.29 mb/d y/y resulting in a 2.9 mb m/m draw in crude inventories (lower y/y by 10.1 mb). The decline in crude imports was led by the UAE (-0.24 mb/d y/y) and Saudi Arabia (-69 thousand b/d y/y), offsetting increases in Mexican imports (+0.16 mb/d y/y) and Iranian imports (+98 thousand b/d y/y). Product inventories rose by 5.3 mb m/m to the highest level for the year at 94.5 mb, led by kerosene and LPG with the latter at a 33-month high.