Japanese December oil demand picked up m/m broadly in line with seasonal averages, by 0.62 mb/d to 4.20 mb/d, but remained lower y/y by 0.41 mb/d amid an exceptionally warm winter (December HDDs were 21% lower y/y and 17% lower than the five-year average). The December 2015 reading was the lowest for the month since our records began in 1995. LPG demand plunged y/y by 0.12 mb/d to 0.43 mb/d, while fuel oil demand fell by 92 thousand b/d. Kerosene demand also plummeted, lower by 0.11 mb/d to 0.52 mb/d. The restart of nuclear plants, increased renewables, and lower power consumption (down y/y by 10% in December) continue to drive oil demand lower y/y. In January, an appeals court removed an injunction blocking the restart of two 870 MW units at the Takahama nuclear power plant, with both set to come online by the end of Q1 16. This could weigh further on fuel oil in the coming months, especially with the winter set to stay warm through Q1 16. Naphtha demand however, recovered to 0.90 mb/d, higher y/y by 43 thousand b/d, buoyed by strong ethylene margins, although this simply offset weak gasoline demand, lower y/y by 48 thousand b/d to 0.96 mb/d. Across 2015, total Japanese demand averaged 3.74 mb/d, a record low.
December refinery runs rose m/m by 0.21 mb/d to 3.40 mb/d, as offline capacity fell to just 79 thousand b/d, with a 0.1 mb/d CDU at Nansei’s Nishihara refinery offline for part of the month, as well as a 43 thousand b/d RFCC at JX’s Sendai refinery. January runs are likely to have remained elevated, as offline capacity totalled only 50 thousand b/d, although weak domestic demand is leading to run cuts. Showa Shell will cut runs by 1.9% y/y in Q1 16 while the country’s largest refiner, JX Nippon, reduced its planned run-rates for January by 3.6%.