State of emergency sends Japan's Apr motor fuels demand to lowest in at least 31 years

Tokyo — Japan's state of emergency measures sent the country's motor fuels demand in April to the lowest level for the month in at least 31 years as the steps worsened an already weak demand for gasoline and gasoil because of the coronavirus pandemic.

The state of emergency, which was first declared April 7 for Tokyo, Kanagawa, Saitama, Osaka, Hyogo and Fukuoka, and expanded April 16 to nationwide until May 6, has accelerated the drop in domestic demand for the motor fuels in recent weeks.

Japan's gasoline demand is estimated at 3.18 million kl, or 666,719 b/d, in April, down 22% from a year earlier, with gasoil demand estimated down 10% on the year to 2.49 million kl or 520,053 b/d, the country's largest refiner JXTG Nippon Oil & Energy said Tuesday.

JXTG attributed the drop in motor fuels demand to the state of emergency, which had slashed gasoline and gasoil consumption as drivers were asked to refrain from going out.

The country's restraint measures also reduced a number of operational tourist and public buses as well as construction works, additionally pressuring gasoil demand as the transport and machinery fuels, JXTG officials said.

The April gasoline and gasoil demand would be the lowest for that month since at least 1989, when domestic gasoline sales stood at 3.29 million kl and gasoil sales were 2.71 million kl in April that year, according to the Ministry of Economy, Trade and Industry data immediately available.

Price drop

The sharp drop in domestic motor fuels demand in April has also increasingly pressured domestic wholesale product prices by local refiners in recent weeks, with JXTG having slashed its weekly wholesale base price more than their apparent crude costs for the second consecutive week.

JXTG cut the weekly domestic wholesale base price for its five major rack petroleum products by Yen 6,500/kiloliter ($9.63/b), market sources told S&P Global Platts on Tuesday.

After the reduction, JXTG's base price for gasoline will be Yen 24,000/kiloliter this week, with gasoil at Yen 26,500/kl for two weeks to May 13 from Thursday because of the country's Golden Week national holidays over late April to early May.

JXTG declined to comment on its wholesale prices.

The movement in JXTG's domestic rack prices typically follows price trends in crude procurement costs based on the daily average of the Platts Dubai and Oman crude benchmarks instead of movements in global product prices.

Its latest price drop, however, exceeded the crude procurement cost reduction range for the second consecutive week, increasing downward pressure on the spot oil products market.

Japan's upcoming gasoline demand during the Golden Week national holidays -- one of the country's peak driving seasons -- looks bearish this year as leisure demand cannot be expected in the midst of the state of emergency, according to market sources.

Regional demand

Outside Japan, the Asian gasoline market has also been met with tepid demand due to the respective regional lockdowns, which has curbed driving activity in what is usually a peak gasoline demand season.

Gasoline demand typically peaks in Southeast Asia in the same month as the Muslim holy fasting period of Ramadan, during which city workers in Malaysia and Indonesia travel home to visit their families. Ramadan started last week.

The Asian gasoline market will remain locked in contango in the near term, as supply continues to build against the backdrop of poor demand. Reflecting the bearishness, the front month May/June swap 92 RON swap spread was assessed at minus $2.45/b at the Asian close Monday, according to S&P Global Platts data.

The demand outlook for the Asian gasoil market remains subdued, with most traders agreeing that regional consumption levels are still hovering at minimal volumes given extended multi-nation lockdowns seen in the Philippines, Singapore, Malaysia and India. The lockdowns, coupled with other containment and social distancing measures, have worked to squash gasoil demand sharply.

The weakness has been reflected in a falling cash differential for the Asian benchmark ULSD grade, which has weakened by more than twofold since the start of the month to minus $1.87/b to MOPS gasoil assessments on Monday, plunging from minus 84 cents/b on April 1.