Although Japanese oil demand picked up seasonally in February, the uptick was considerably less than seasonal norms, rising m/m by 0.12 mb/d to 4.85 mb/d. However, in line with our expectations as highlighted in the latest Fundamentals, February demand was lower y/y by 0.27 mb/d, the first y/y decline since September 2011 and the steepest decline since July 2009, confirming the early indications suggested by the top 10 Japanese utilities burning 33% less crude oil and 3.3% less fuel oil. Part of the weakness was due to a weaker economic backdrop and higher coal burn, but the extent of the y/y decline was aggravated largely due to a much warmer winter this year, with demand in February last year hitting a record high. Not surprisingly, crude oil burn declined y/y by 0.1 mb/d to 0.27 mb/d, marking the fourth straight month of y/y decline and the sharpest fall since July 2009 when lower economic activity and higher nuclear output weighed on crude burn. Fuel oil demand fell y/y by 34 thousand b/d, for the first time since July 2010, while kerosene demand was lower y/y by 72 thousand b/d, the first decline since October 2012. Given that the positive effects from Fukushima are now behind us, we expect Japanese demand to decline y/y this year, although the pace of decline should ease going forward given the specific weather impact in February.
Japanese refinery runs picked up to 3.78 mb/d, higher y/y by 0.13 mb/d, although crude oil imports fell to 3.56 mb/d, lower y/y 0.29 mb/d. Imports from Iran remained steady at 0.21 mb/d, lower y/y by 91 thousand b/d. Thus, crude inventories declined m/m by 13 mb, and currently stand at 8 mb below the five-year average, while product stocks declined m/m by 0.2 mb.