Japanese oil demand declined by 0.18 mb/d y/y to 3.14 mb/d in June, marginally higher than May’s 3.13 mb/d, which was the lowest since at least 1995. Manufacturing activity contracted for the fourth consecutive month in June, although the PMI reading rose to 48.1 from 47.7 in May. Export orders continue to fall sharply, hurt by the strong Japanese yen, but there are some signs of recovery, with June’s industrial output up by 1.9% m/m and July output expected to rise by a further 2.4%. Unsurprisingly, demand for all products fell y/y except naphtha, which rose by 37 thousand b/d y/y despite higher cracker maintenance in June this year compared to last year. Use of crude and fuel oil in power generation continued to drive declines in demand, by 0.12 mb/d and 37 thousand b/d y/y respectively. We expect the y/y decline for fuel oil demand to shrink over July due to an ongoing heatwave across North Asia and an unplanned shutdown of Kyushu Electric’s coal plant. Diesel demand fell by 34 thousand b/d y/y to 0.56 mb/d and gasoline contracted marginally to 0.87 mb/d. Jet also declined by 5 thousand b/d y/y but was the only product to grow y/y over H1 16, boosted by strong tourism.
Refinery runs fell by 0.16 mb/d m/m but rose by a whopping 0.31 mb/d y/y to 2.98 mb/d, due to lower maintenance (0.24 mb/d lower y/y). Crude imports rose by 0.2 mb/d y/y, led by a 0.18 mb/d y/y increase in Iranian imports to 0.28 mb/d. June also saw Japan’s first receipt of ANS crude. Crude inventories rose by 3.2 mb m/m as overall demand was dragged down by lower direct crude burning. Net product exports hit a seven-year high of 0.16 mb/d (higher y/y by 0.19 mb/d and 51 thousand b/d m/m), which caused a draw of 1.6 mb m/m in product stocks.