Japanese oil demand totalled 3.49 mb/d in July, higher m/m by 0.11 mb/d but sharply lower y/y by 0.43 mb/d, with an inflated base from the heat wave last year weighing on comparisons. Nonetheless, the m/m pick-up was also far more muted than usual, partly due to cooler than usual weather (8% fewer CDDs than last year and 2% fewer than seasonal norms). The declines were compounded by LNG prices tumbling to a four-year low, encouraging utilities to back out more oil-fired capacity. Indeed, fuel oil demand was down y/y by 23% to 0.30 mb/d and crude burn by 23% to 0.15 mb/d. Meanwhile, naphtha demand was still lower y/y by 11% to 0.68 mb/d, due to unplanned cracker maintenance. Gasoline demand was lower y/y by nearly 0.1 mb/d at 0.92 mb/d, with the retail tax hike that took gasoline prices to a 70-month high still weighing. Reports suggest that August gasoline demand has fallen further, down y/y by 5% as Typhoon Halong dented holiday travel severely. Going forward, with weather forecasts pointing to a weak El Niño pattern, i.e. a colder than usual winter, fuel oil and crude demand for power generation can receive a boost in Q4 14, particularly if, as we expect, LNG prices pick-up into year end.
Refinery runs rose m/m from June's record low to 3.12 mb/d, slightly higher than our expectations of 3.04 mb/d, as offline refining capacity fell m/m by over 0.5 mb/d even after including a fire at the Yokkaichi refinery. With limited maintenance in August, runs are likely to have risen above 3.2 mb/d, although run cuts may temper the increase. September and October sees about 0.35 mb/d of capacity offline, thereby keeping runs below 3.2 mb/d. Crude imports were broadly steady m/m at just below 3.1 mb/d, lower y/y by 0.39 mb/d, with imports from Iran falling back to 0.13 mb/d, while crude inventories fell m/m to below 100 mb.