Japanese March oil demand declined by 0.19 mb/d y/y to 3.95 mb/d, the smallest fall since October 2015. The bulk of the decline came from the power sector, where mild temperatures in March (HDDs lower by 16 days y/y), efficiency gains, and displacement by coal, led to fuel oil and crude use declining by 77 thousand b/d and 99 thousand b/d respectively. LPG demand fell y/y for the fifteenth month, by 56 thousand b/d. Otherwise, gasoline, kerosene, and diesel all saw demand pick up y/y, rising by a cumulative 73 thousand b/d, the first growth in demand for all three products since October 2015. The demand growth in kerosene and diesel certainly came as a surprise given March’s milder temperatures and weakness in manufacturing PMI, which fell to 49.1, the biggest contraction since 2013. However, we expect this to be short-lived as the earthquake that struck Kyushu in April shut numerous manufacturing plants, and is likely to weigh on diesel. Naphtha demand fell by 40 thousand b/d y/y in March, due to softer ethylene margins and the planned maintenance of Tosoh Yokkaichi’s steam cracker, and April is likely to see further declines due to the losses in manufacturing demand.
Refinery runs registered a rare 45 thousand b/d y/y increase in March, to 3.44 mb/d, resulting in a 0.13 mb/d y/y increase in product exports to 0.62 mb/d. This was led by fuel oil, diesel, and gasoline, up cumulatively by 0.13 mb/d. Crude imports fell y/y by 0.13 mb/d to 3.6 mb/d, led by a 26% y/y decline in Iranian imports to just below 0.2 mb/d. But as runs fell and imports rose m/m, crude inventories rose by 1.45 mb m/m to 88.5 mb, while total product inventory fell by 3.9 mb m/m to 81.2 mb, led by declines in naphtha and diesel (both down by 1.7 mb).