Japanese oil demand fell y/y in May by a steeper than anticipated 0.249 mb/d (6.4%), with the weakness in fuel oil, crude burn and naphtha demand weighing on the total. At 0.698 mb/d, naphtha demand was at its weakest levels since June 2012, which was also the last time naphtha consumption fell below 0.7 mb/d during cracker maintenance. May's decline was attributed to Mitsubishi Chemical's naphtha cracker entering a 50 day turnaround period that commenced on 17 May. Meanwhile, in a confirmation of the Japanese utility data for May, crude burn was lower y/y by 70 thousand b/d at 0.247 mb/d and demand for fuel oil was lower by 0.171 mb/d at 0.285 mb/d, its lowest level since April 2011. LPG demand was also weak, falling to a 7 month low, down y/y by 33 thousand b/d at 0.465 mb/d. This trend is likely to persist, as appetite from the Japanese utilities sector has fallen due to coal plant restarts and commissioning of new coal plants. Other parts of the barrel were supported, with kerosene higher y/y by 43 thousand b/d at 0.167 mb/d, while gasoline and gasoil demand also registered y/y growth.
Japanese refinery runs fell by a steep 0.387 mb/d m/m in May, although y/y declines were a shallower 66 thousand b/d as maintenance and voluntary run cuts continued. With maintenance at Showa Shell, Nansei and Taiyo Oil's refineries continuing in June and July, we only expect a pick-up in runs in mid Q3 13. In line with this, imports fell m/m by 0.31 mb/d to 3.379 mb/d, although imports from Iran, which effectively fell to zero in April, picked up to 0.239 mb/d, higher y/y by 0.11 mb/d. Finally, despite crude inventories building m/m by 2.2 mb, stocks remain below the five year average by 3.3 mb, whilst product stocks reduced m/m by 3.3 mb.