Japanese oil demand contracted y/y by 0.12 mb/d, to 3.41 mb/d in August. CDDs remained higher y/y by 16% which boosted power output by 5%. However, due to the restart of the Ikata U3 nuclear reactor (890 MW) on 15 August—which reached 100% operating capacity on 22 August—fuel oil demand resumed y/y declines, lower by 44 thousand b/d to 0.20 mb/d after posting its first growth in July in over three years. We expect Ikata 3 to back out 20 thousand b/d of fuel oil demand. Direct crude burn for power generation also contracted by 77 thousand b/d y/y to 61 thousand b/d. LPG demand grew by 51 thousand b/d y/y due to increased usage of propane in city gas supplies and butane as a petrochemical feedstock, but the latter reduced naphtha demand, which fell by 30 thousand b/d y/y. Diesel demand rose y/y for the second consecutive month, in line with manufacturing PMI which hit a six-month high of 49.5 in August. Gasoline demand was flat, at 1.03 mb/d y/y, likely linked to greater use of air-conditioning in cars, although jet demand declined by 30 thousand b/d owing to a strong 2015 base.
Refinery runs rose declined y/y by 0.11 mb/d in August to 3.39 mb/d despite recovering m/m. Power outages knocked out two refineries on 8 September—the 0.18 mb/d Idemitsu Aichi and the 0.13 mb/d JX Marifu—for almost two weeks, weighing on runs. August total product exports fell y/y for the first time in four months, led by gasoline and gasoil, contributing to the tightening of Asian gasoline markets. Crude imports fell again by a massive 0.29 mb/d y/y resulting in crude stocks plummeting by 7.4 mb m/m, but were offset by product inventories rising by another 7.2 mb, pushed by LPG stocks rising to their highest since November 2008. Further refinery rationalisation by April 2017 suggests crude imports will continue to stay low.