Japanese oil demand declined y/y for the fifth straight month in March, falling by 0.16 mb/d to 3.45 mb/d amid weaker regional demand. Fuel oil led the weakness, with demand falling by 64 thousand b/d y/y to 0.14 mb/d on the back of structural weakness in the bunker fuel segment. LPG consumption fell by 60 thousand b/d y/y to 0.4 mb/d as steam cracker margins favoured rival feedstock naphtha for the first part of the month. We expect LPG demand (especially propane) to pick up in April as margins have improved vis-à-vis naphtha, with prices for the heavier feedstock pushed higher by gasoline blending demand. Gasoline demand fell for the sixth consecutive month, lower by 47 thousand b/d y/y to 0.83 mb/d. Diesel demand was also lower, by 14 thousand b/d y/y, as the Nikkei Japan Manufacturing PMI came in at 49.2 for March. Kerosene demand fell by 43 thousand b/d y/y to 0.31 mb/d as warmer than average temperatures reduced heating demand, with March considered the last winter month.
Refinery runs fell by 0.11 mb/d y/y in March to 3.16 mb/d, with a recovery in product margins offset by weakening demand. Crude imports were close to flat y/y, falling by 6 thousand b/d to 3.2 mb/d, as UAE imports fell by 0.14 mb/d y/y. March saw a 96 thousand b/d y/y increase in Iranian crude imports, which rose to 0.3 mb/d. We expect limited imports from Iran in April and a complete halt from May as Japan was cautious loading crude even before the US announced it would not renew sanctions waivers. Crude stocks rose m/m by 2.8 mb to 80.2 mb but were still lower than the five-year average (-4.5 mb). Product stocks fell m/m by 6.7 mb y/y to at 75.3 mb as product exports rose by 51 thousand b/d y/y to 0.62 mb/d.