Japanese oil demand remained strong in August, totalling 4.19 mb/d, higher y/y by 154 thousand b/d. While continuing to represent an important cushioning effect for the otherwise weak OECD demand, the large upswing seen post the Fukushima earthquake has now mostly worked its way out of the base. After y/y increases of 459 thousand b/d in Q1 and 332 thousand b/d in Q2, the Q3-to-date increase is a much lower 148 thousand b/d. Nonetheless, much higher than normal temperatures in August did boost the usage of oil in electricity generation by 2% y/y, compared to a 1.4% y/y fall in July. With nuclear output still at only 5% of capacity last month and hydroelectricity output 10% lower than normal, thermal inputs into electricity generation picked up strongly (up by 14% y/y). Fuel oil demand was a strong 0.52 mb/d, higher y/y by 94 thousand b/d, while direct crude burn climbed back above 0.2 mb/d, and at 0.27 mb/d was higher y/y by 70 thousand b/d. With temperatures well above normal this month too, both fuel oil and direct crude burn demand are likely to stay elevated.
Crude oil imports picked up m/m by 182 thousand b/d to 3.605 mb/d, in line with a pick up in refinery runs. Imports from Iran, having fallen to 0 in July, picked up to above 100 thousand b/d, as the Japanese government started offering sovereign insurance for shipping. Crude inventories fell m/m by 3 mb, but the fall was offset by an equal increase in product inventories. Relative to the five-year average, total crude and product inventories are still below by 11.1 mb.