Japanese oil demand declined y/y for the fourth consecutive month in February, falling by 0.26 mb/d to 3.87 mb/d amid a warm winter and a slowdown in regional demand driven by China. Kerosene led the weakness, with demand falling by 0.10 mb/d y/y to 0.50 mb/d. Fuel oil was also weak, falling by 0.10 mb/d y/y to 0.17 mb/d, impacted by weak bunker demand and the shutdown of Kainan’s oil-fired power plant. Temperatures are set to be above average until June, and while this weighed on heating demand in the winter, this is likely to support air-conditioning demand in the summer. Gasoline demand contracted by 18 thousand b/d y/y, followed closely by diesel, demand for which fell by 14 thousand b/d y/y, as Japan’s manufacturing PMI slid to a 32-month low of 48.5 in February. A surge in naphtha prices failed to stymie demand, which rose by 18 thousand b/d y/y to 0.85 mb/d. As expected, LPG demand picked up in February, rising y/y by 17 thousand b/d to 0.49 mb/d as strong cracker margins meant flexible petrochemical producers maximised consumption of the lighter feedstock.
Refinery runs fell by 0.37 mb/d y/y in February, to 2.88 mb/d, with weak margins and falling demand causing refiners to restrict operations. Crude imports rose y/y, by 99 thousand b/d to 3.1 mb/d, as Japan received 0.15 mb/d of Iranian crude. While imports of Iranian crude continued in March, we expect these to cease in April ahead of the 4 May deadline for renewing waivers, as the US pushes Japan to cut Iranian imports to zero. The rise in imports failed to boost crude stocks, which fell by 1.5 mb y/y to 77.3 mb. Product stocks were higher by 7.3 mb y/y, at 82 mb, while product exports surprised to the upside, rising by 0.14 mb/d y/y to 0.67 mb/d.