Japanese February oil demand increased seasonally m/m by 0.23 mb/d to 4.17 mb/d, but the y/y decline of 0.47 mb/d was the steepest since August 2014, due to a mild winter with 19 fewer HDDs compared to a year ago. Indeed, demand for all products fell with the exception of jet which rose by 7 thousand b/d. Fuel oil led the declines, down y/y by 0.12 mb/d due to lower power generation (-1% y/y) as well as a brief period of operations of Kansai’s Takahama 3 nuclear reactor before a court injunction shut it again in early March. This may help fuel oil regain some grounds, especially as weather forecasts point to a warmer than usual summer. LPG demand declines were also exacerbated by the warm winter, falling by 0.12 mb/d y/y. Similarly, kerosene (used for home heating) declined y/y by 48 thousand b/d. Despite February seeing the widest spread between ethylene and naphtha since June 2015, naphtha demand declined by 93 thousand b/d y/y. This was due to the permanent closure of Asahi Kasei’s 0.5 Mtpy naphtha cracker on 12 February as part of ongoing consolidation and unplanned works at the Kashima 2 and Yokkaichi crackers. Gasoline demand fell y/y by 32 thousand b/d despite average retail prices dropping to the lowest level since April 2009 while gasoil demand fell by 16 thousand b/d y/y, as February’s PMI of 50.1 marked the slowest growth in eight months. We expect Japanese demand to decline y/y by around 0.2 mb/d in 2016.
February runs came in lower y/y by 0.15 mb/d to 3.47 mb/d due to warm temperatures weighing on domestic demand. Crude imports were lower by 0.19 mb/d y/y although Iranian imports spiked to the highest level since March 2015, at 0.24 mb/d. Thus, crude stocks drew by 4.1 mb. Product stocks drew by 6.7 mb, as exports hit the highest levels since August 2010.