In line with its long-term trend of structural decline, Japan’s total oil demand in March fell by 7.6% m-o-m and 3.7% y-o-y to 3.23 mmb/d. The overall drop in Japan’s petroleum product demand was ledJapan by fuel oil (-30.0%) and gasoil (-4.4%) despite naphtha posting rare double-digit growth (+11.2%).

Japanese fuel oil consumption tumbled by 85 kb/d y-o-y to 198 kb/d in March on the back of lower demand for power generation. The restart of Kyushu’s 890 MW Sendai No.2 nuclear reactor which was previously shut for maintenance led to higher nuclear power generation, eating into the share of fuel oil in the power generation mix. As such, Japan’s fuel oil imports fell by 44.2% y-o-y to 30.8 kb/d in March. With the expected restart of Kansai’s two 870 MW reactors at Takahama (No.3 and No.4) in mid-May as well as the mothballing of three oil-fired units at its Kainan plant, the use of fuel oil in power generation will continue to be backed out. Similarly, Japan’s gasoil demand edged down by 39 kb/d y-o-y to 837.9 kb/d in March, ending a four-month streak of consecutive growth. This was largely due to a slowdown in Japanese manufacturing activity.

Japanese naphtha demand saw unusual annual growth for the second consecutive month, up by 86 kb/d y-o-y to 857 kb/d. Japan’s naphtha-fed steam crackers ran at higher operating rates y-o-y on the back of healthy petchem margins as well as lower cracker maintenance. Subsequently, Japan’s naphtha imports grew by 20% y-o-y to 460 kb/d in March in order to meet the supply shortfall. Higher imports contributed to the short-term recovery in Long Range (LR) tanker rates in Asia in March. Heavy refining maintenance in May and June combined with the capacity cuts of 272 kb/d to meet a government mandate at the end of March is likely to lead to further growth in Japanese naphtha imports over Q2.

Source: OFE Insights