Oil product demand in OECD Asia (Japan, Korea and Australia) fell by 0.18 mb/d y/y in September, driven by declines in South Korean (-0.13 mb/d y/y) and Japanese (-63 thousand b/d y/y) demand. A 22 thousand b/d y/y increase in Australian demand did little to offset the fall. South Korean demand fell as expected due to the reversal of tax cuts, while Japanese demand continued to trend lower as global and regional trade tensions and Typhoon Lekima hindered economic activity. Reconstruction efforts will likely provide some support to Japanese oil demand in Q4 19, particularly on the diesel front.
Regional diesel demand fell by 61 thousand b/d y/y, led by a 91 thousand b/d (20%) y/y drop in South Korean demand. Korean demand was marred by the end of the government’s tax cuts on auto fuels this summer, which prompted consumers to stock up in August. Demand is set to remain weak in the near term on rising retail fuel prices. The softer demand outlook is also expected to translate into higher exports for the rest of the year, especially as refineries return from turnarounds this month.
Declining petrochemical margins (-$73/t m/m) meant naphtha demand was lower y/y by 61 thousand b/d across OECD Asia despite lower cracker maintenance (-0.12 Mt of ethylene capacity offline y/y), as the September attack on Saudi oil facilities boosted feedstock prices. However, LPG demand rose by 8 thousand b/d y/y, with lower Japanese demand (-68 thousand b/d y/y) offset by higher Korean demand (+75 thousand b/d y/y). Korean LPG continued to be supported by flexible crackers maximising throughput of propane given wide differentials to naphtha ($162/t) in September. Significant margin compression in October and into November is likely to have further lowered naphtha demand, but LPG demand should be supported by sustained strong propane margins vis-à-vis naphtha.
Refinery runs fell by 0.18 mb/d y/y to 6.78 mb/d in September due to lower margins. Crude imports fell by 77 thousand b/d y/y to 5.93 mb/d, as a 0.19 mb/d y/y increase in Korean imports failed to offset lower Japanese (-0.15 mb/d y/y) and Australian (-0.11 mb/d y/y) imports. Product exports rose by 48 thousand b/d y/y and are likely to increase further in Q4 19 on subdued domestic demand and higher refinery runs. Australian condensate production increased by 36 thousand b/d y/y in September to 0.21 mb/d. With refinery appetite for condensate rising across Asia, INPEX recently announced its intention to increase exports of Ichthys condensate in 2020 to 63 thousand b/d (from 52 thousand b/d in 2019). Total product stocks across OECD Asia rose by close to 2 mb m/m to 158.6 mb, as low oil demand and Typhoon Lekima meant refineries could not place volumes in the domestic market. Crude stocks fell by 6.8 mb m/m to 112.3 mb.