Japanese June oil demand declined m/m by 65 thousand b/d, less than seasonal norms, to 3.37 mb/d, with y/y declines at 0.16 mb/d. The bulk of the weakness was in naphtha, where demand declined y/y by 0.12 mb/d to 0.58 mb/d, the lowest since November 2008, due to a combination of planned cracker turnarounds (e.g. Mitsubishi Chemical's No 2 cracker at the Kashima plant) and some LPG substitution due to far more attractive prices-a trend we see continuing given rising LPG exports from the US. Indeed, LPG demand increased y/y by 42 thousand b/d, the highest rate of growth since July 2012. Although July saw cracker maintenance ease somewhat, various outages including at the Kashima plant and Showa Denko's cracker tempered demand. Meanwhile, in line with data from the Japanese utilities, fuel oil (down y/y by 42 thousand b/d) and crude demand (lower y/y by 71 thousand b/d) continued to fall, despite fuel oil demand rising slightly m/m to 0.27 mb/d. Japanese utilities ran down stocks of fuel oil as imports remained subdued. If sustained, this pattern could be supportive for Asian fuel oil markets at the margin. However, with El Niño weather patterns likely to keep Q3 14 temperatures mild in Japan, overall power demand will stay muted, weighing on fuel oil and crude burn.
Crude oil imports fell m/m by 0.26 mb/d to their lowest levels in almost 20 years at 3.01 mb/d, although a larger 0.34 mb/d m/m fall in refinery runs to a record low of 2.62 mb/d led to crude stocks rising m/m by a large 8.2 mb to above 100 mb for the first time since May 2013. But, led by gasoline, product inventories fell m/m, sitting 12.6 mb below seasonal norms. While offline refining capacity falls to 0.34 mb/d in July and 0.1 mb/d in August, weak margins are capping runs, with high crude stocks tempering imports, adding to the prompt oversupply of crude.