Oil product demand in OECD Asia (Japan, Korea and Australia) fell by 0.14 mb/d y/y in July amid weakening regional trade activity on the back of rising global (US-China) and regional (Japan-Korea) trade tensions. Japan led the declines, lower by 0.18 mb/d y/y, while strength in the petrochemical sector pushed South Korean oil demand up by 42 thousand b/d y/y. Australian oil demand was close to flat in July, falling by just 2 thousand b/d y/y.
Higher prices at the pump stymied gasoline demand, which fell by 86 thousand b/d y/y across OECD Asia, once again led by Japan (-67 thousand b/d y/y). Fuel oil trailed closely, down by 80 thousand b/d y/y, as sustained weakness in the bunker fuel segment led to the ninth consecutive month of negative readings. Diesel demand rose by a modest 7 thousand b/d y/y, driven by marginal increases in manufacturing PMI readings, with Australia leading the pack at 51.3, followed by Japan at 49.4 and South Korea at 47.3. Higher August PMI readings in Australia (+1.8 m/m) and Korea (+1.7 m/m) suggest there is further upside for growth in diesel demand.
Strong cracker margins in both Japan and South Korea sustained demand for petrochemical feedstocks in July, with naphtha demand rising by 46 thousand b/d y/y and LPG demand up by 14 thousand b/d y/y across OECD Asia. In Korea, LPG demand increased by 51 thousand b/d y/y, followed closely by naphtha (+24 thousand b/d y/y). Both petrochemical feedstocks benefitted from a lighter round of cracker maintenance y/y, with LPG gaining the most on the back of consistently strong cracking margins and the increased flexibility of the Korean cracker fleet. In Japan, demand for the product fell by 38 thousand b/d y/y given the limited flexibility of Japanese crackers and despite favourable LPG cracking margins. However, flat cracker maintenance y/y and improved margins boosted naphtha demand, which rose by 22 thousand b/d y/y.
Regional product supplies increased by 67 thousand b/d y/y, driven by higher diesel output (+99 thousand b/d y/y), due to strong distillate margins. Australian condensate production was up by 68 thousand b/d y/y and 7 thousand b/d m/m in July, to reach a record 0.24 mb/d. The increase in production in 2019 (+22% from January to July) was largely driven by the start-up of numerous LNG projects in Western Australia’s Browse Basin, such as at Japanese firm INPEX’s 8.9 Mtpy Ichthys (two trains), Shell’s 3.6 Mtpy Prelude (which started exporting LPG in September) and Chevron’s 8.9 Mtpy Wheatstone LNG project. We expect increasing amounts of Australian condensate to head to Japan and Korea as the countries seek replacements for Iranian South Pars condensate. Total product stocks across OECD Asia increased by 3.8 mb m/m to 147.5 mb in July, while crude stocks fell by 2.5 mb m/m to 133.4 mb.