Japanese oil demand continued to decline y/y in January, albeit at a slower rate, and fell m/m by 0.17 mb/d to 4.55 mb/d. Given the much warmer weather (5.8% fewer heating degree days y/y), the y/y decline of 0.17 mb/d – less than the 2013 average of 0.2 mb/d – is impressive, especially as coal continues to displace oil and gas from power generation. Warm weather weighed on LPG demand, lower y/y by 62 thousand b/d, while gasoil demand fell y/y by 60 thousand b/d. Crude burn and fuel oil demand, despite rising m/m to 0.27 mb/d and 0.47 mb/d, were lower y/y by 25 thousand b/d and 60 thousand b/d respectively. Naphtha demand continued to buck the broader trend, rising y/y by 65 thousand b/d to 0.88 mb/d, the highest since February 2011. However, naphtha demand is starting to ease as restocking demand is coming to an end and ahead of cracker maintenance. Naphtha cracks have already started to come off. Nonetheless, overall February demand should pick up marginally amid a cold spring with HDDs 15.7% above the five-year average. Across 2014, we expect Japanese demand to be broadly flat y/y.
Japanese refinery runs rose marginally m/m to 3.71 mb/d, despite weak domestic demand and previously announced economic run cuts. JX Holdings has again stated today that it will reduce runs for domestic fuel by 5% y/y in February but we remain sceptical that this will translate into substantial cuts. As a result, product stocks are rising, thereby subduing demand for product imports, which fell m/m by 0.4 mb/d to 2.5 mb/d. Closures aside, Japanese runs should fall as TARs kick in, peaking at above 0.8 mb/d in May. In line with higher runs, crude imports rose m/m by 0.13 mb/d to 4 mb/d, a 10-month high, with Iranian imports at 0.21 mb/d, a four-month high.