Japan’s oil demand continued to contract in May, by 0.14 mb/d y/y to 3.13 mb/d, the lowest since at least 1995. Indeed, May manufacturing PMI fell to 47.7, the weakest since January 2013, as the country is still reeling from the effects of the Kyushu earthquake in April. Export orders were also hurt by a stronger Japanese yen, which rose further in June following the UK’s Brexit vote. June manufacturing likely stayed weak before recovering slightly in July. Excepting LPG and jet/kerosene, demand for all other products declined in May, led by naphtha and fuel oil. Naphtha demand fell due to a much higher cracker maintenance this year (1 Mtpy, higher y/y by 0.35 Mtpy), as well as the permanent closure of the Asahi plant from February 2016. Use of crude and fuel oil in power generation continued to decline, by 63 thousand b/d and 85 thousand b/d. Diesel demand fell by 17 thousand b/d y/y to 0.52 mb/d in line with lower manufacturing, while gasoline demand contracted slightly to 0.88 mb/d. Jet grew the most in nine months, by 21 thousand b/d y/y to 0.1 mb/d, as the number of inbound tourists has climbed by 35% y/y so far this year despite a stronger yen. LPG posted its second consecutive growth in May, up by 65 thousand b/d y/y to 0.4 mb/d due to strong petrochemical demand.
Refinery runs fell by 0.28 mb/d m/m but rose by 0.13 mb/d y/y to 3.1 mb/d, due to a lighter maintenance schedule (0.26 mb/d lower y/y) and fell below 3 mb/d in June as works peaked at 0.74 mb/d. Despite falling m/m, crude imports rose by 19 thousand b/d y/y to 3.3 mb/d, led by Iran, imports from which rose by 0.12 mb/d y/y to 0.31 mb/d (the highest since January 2012). This caused crude inventories to rise by 5 mb m/m to 93.2 mb. Product exports rose by 0.14 mb/d y/y to 0.61 mb/d but lower domestic demand dragged product stocks up by 5.6 mb m/m.