Japanese oil demand grew annually for the second consecutive month in December 2016, by 8 thousand b/d y/y to 4.21 mb/d, a 22-month high. Cold weather in the month (HDDs were higher y/y by 6%) continued to boost heating demand, with kerosene and fuel oil posting another month of y/y growth—23 thousand b/d and 3 thousand b/d, respectively. But the largest boost to demand came from LPG, which grew by 76 thousand b/d y/y, thanks to support from robust city gas demand for heating and petrochemicals feedstock. Diesel also posted another month of demand growth at 3 thousand b/d, which was in line with the manufacturing PMI rising to its highest reading since March 2014 at 52.4. Naphtha and utility demand for crude burn fell y/y by 59 thousand b/d and 42 thousand b/d respectively, although naphtha was just 10 thousand b/d below November 2016’s 10-month high of 0.85 mb/d. Persistent cold weather through January has seen retired oil-fired plants brought back to service, while an improving economic backdrop and a low base will ensure Japanese demand rises y/y through at least Q1 17.
Refinery runs rose to a 22-month high of 3.54 mb/d in December 2016, higher y/y by 0.14 mb/d. Crude imports grew by 0.11 mb/d y/y, pushing crude inventories higher m/m by 1.4 mb after taking into account the decline in utility crude burn. Imports from Saudi Arabia surged by 0.27 mb/d y/y, but those from Kuwait fell by 0.15 mb/d y/y. Japan remained a net importer of products for the second consecutive month in December 2016, driven by strong imports of kerosene at 87 thousand b/d, which was the highest since February 2013. Total product inventories declined m/m by 6.8 mb, led by a m/m LPG draw of 4 mb, but it is naphtha stocks that may require more urgent replenishment, after they fell to the lowest level since July 1995.