Japanese May oil demand declined m/m by 0.23 mb/d, broadly in line with seasonal norms, to 3.43 mb/d, with the y/y decline easing slightly to below 0.22 mb/d. May's decline was led by weakness in direct crude burn, which fell y/y by 0.1 mb/d to below 0.15 mb/d, the lowest since September 2013, in line with the data released by Japan's top 10 utilities. Fuel oil demand also fell to its lowest since April 2011, at 0.27 mb/d. Fuel oil has been battered by Japan switching to generating electricity with cheaper coal at newer, more efficient power plants while closing the least efficient oil-fired generating stations. However, the slow pace of nuclear restarts will temper y/y declines, with May's fall just 27 thousand b/d. The PAJ sees Japan's demand for crude burn and fuel oil this summer being around 10-20% lower y/y due to low power demand and utilities increasing their use of coal. Gasoline demand recovered to 0.89 mb/d, but remained lower y/y with the price hike in April weighing. Naphtha demand remained weak, in line with our view, at 0.66 mb/d, lower y/y for the third straight month as Mitsubishi Chemical permanently shut its 0.39 mtpa cracker on 3 May. Two further crackers are set to close in May 2015 and April 2016 (combined capacity: 0.9 mtpa), keeping naphtha demand in check.
Japanese refinery runs fell below 3 mb/d in line with our estimates, as planned maintenance took 0.6 mb/d of capacity offline on top of around 0.4 mb/d permanent refinery closures. Runs are likely to fall further in June, with offline capacity rising to 0.9 mb/d. In line with this, crude imports fell by 0.26 mb/d m/m to 3.27 mb/d, also lower y/y, although imports from Iran picked up to 0.18 mb/d, with part of the increase related to the sharp drop in April. We expect imports from Iran to have fallen back again in June, with pressure from the US to reduce intakes intact.