Japanese January oil demand declined seasonally m/m by 0.26 mb/d to 3.95 mb/d, but remained lower y/y by 0.25 mb/d. The country experienced a mild January, with HDDs the same as last year, and down by 7% on the five-year average, as the influence of El Niño continued. As a result, total power consumption in January fell y/y by 3%, and the restart of Kansai Electric Power Takahama No.3 reactor on 29 January continued to drive oil demand lower. LPG, gasoil, and fuel oil bore the brunt of the decline, falling y/y by 0.10 mb/d, 38 thousand b/d, and 0.11 mb/d respectively. Kansai also restarted its Takahama No. 4 reactor on 26 February, and despite fuel oil becoming increasingly competitive with natural gas in many markets, fuel oil demand will continue to decline going forward. A warmer winter aside, LPG demand is also on a structural decline as households account for almost 50% of LPG’s usage, and the country’s population has declined to its lowest since 2000. Lower industrial production (3.8% lower y/y in January) hurt gasoil demand. Naphtha demand grew by 32 thousand b/d due to strong ethylene margins in January despite a mechanical issue at Mitsubishi Chemicals Kashima plant from 22 January to 3 February, while jet demand grew by 9 thousand b/d y/y.
January refinery runs rose m/m by 82 thousand b/d to 3.48 mb/d, despite higher offline capacity in January due to planned maintenance at JX’s Marifu refinery from 24 January to 11 March. But with crude imports dropping to 3.40 mb/d, crude inventories declined by 7.3 mb m/m to 91.24 mb. This is not linked to the new government mandate (only announced in mid-February) of reducing its SPR holdings by 70 mb between now and 2020 as falling domestic demand has raised the current forward cover from the mandated 90 days to 115 days.