Japanese oil demand continued on its heavy decline path, with September demand at 3.708 mb/d, lower y/y by 0.28 mb/d, as continued substitution of oil by coal in power generation and a high base both weighed. Nonetheless, the m/m decline was broadly in line with seasonal averages of 0.225 mb/d, as peak summer temperatures eased from record levels in July and August. Unsurprisingly, the bulk of the decline came in fuel oil, where demand fell to 0.32 mb/d, down y/y by 0.19 mb/d, the highest pace of decline since November 2009. Direct crude burn followed suit, down y/y by 0.12 mb/d, the largest fall since July 2009, to just 0.14 mb/d, the lowest since May 2011. This is in line with the data published by Japanese utilities that showed not only a sharp decline in electricity generation during the month but also a sharp fall in both crude and fuel oil consumption (53% y/y and 55% y/y respectively), as coal usage soared by 24% y/y. LPG demand also weakened to 0.39 mb/d (down y/y by 59 thousand b/d). Gasoline demand fell back seasonally below 1 mb/d, although it was lower y/y by 25 thousand b/d, while an improving economy saw both diesel and naphtha demand remain well supported.
In line with our expectations, Japanese refinery runs fell back m/m by 0.18 mb/d to 3.399 mb/d with utilisation rates around 76%. A 0.11 mb/d CDU at the Chiba refinery and a 0.1 mb/d CDU at the Sakai refinery were offline, while the 0.14 mb/d Sakaide refinery closed last month, with another 0.5 mb/d of capacity likely to shut between now and March 2014. Lower runs and high crude oil imports-at 3.689 mb/d, with imports from Iran at 0.25 mb/d, both at their highest since March-meant that crude inventories built m/m.