Japanese oil demand was lower y/y for the third consecutive month in January, falling by 0.18 mb/d to 3.66 mb/d amid warm weather and a slowing economy. Other than a brief cold snap that brought heavy snow to Tokyo and surrounding areas in early February, weather has been warmer than usual this winter—HDDs were 21%, 15% and 9% lower than the five-year average in November, December and January respectively. As such, demand weakness was led by fuel oil (-88 thousand b/d y/y to 0.14 mb/d), which was also weighed down by Japanese utility Hokkaido Electric Power shutting a unit of its fuel-oil fired power plant (350 MW) due to technical issues. Kerosene demand contracted y/y by 37 thousand b/d to 0.53 mb/d. Naphtha demand rose by 25 thousand b/d y/y to 0.82 mb/d, even though a surge in naphtha prices due to a dearth of eastbound flows in mid-month increased the competitiveness of propane as a petrochemical feedstock. We expect LPG demand (particularly propane), which came in 6 thousand b/d lower y/y in January at 0.45 mb/d, to have picked up in February as steam cracker margins have improved.
Refinery runs fell by 57 thousand b/d y/y in January to 3.32 mb/d amid weakening margins and demand. As a result, crude imports continued to fall y/y in January, by 0.17 mb/d to 3.25 mb/d, as increases in Saudi and UAE volumes were offset by another month of no Iranian imports. Though Iranian volumes have been arriving in Japan in February, the May expiry of US waivers means that this trend may not be sustained. Crude stocks were 79.5 mb in January, flat m/m but sharply lower than the five-year average (-8.8 mb). Product stocks were lower by almost 4 mb m/m at 86.2 mb, as total product exports rose by 0.11 mb/d y/y to 0.64 mb/d.