Easing of Japan's state of emergency unlikely to quicken gasoline demand recovery

Tokyo — Japan's partial lifting of the nationwide-imposed state of emergency measures on Thursday is unlikely to boost domestic gasoline demand immediately and significantly as Tokyo and other populous prefectures remain subjected to these self-restrictions, which include movement across prefectures.

Japan on Thursday lifted the state of emergency measures imposed to curb the spread of COVID-19 in 39 out of 47 prefectures, with a planned follow-up review on May 21 to possibly lift measures for Tokyo, Osaka and six other prefectures, prior to the May 31 expiry.

The lifting of the state of emergency, albeit partially, was good news for the Japanese oil industry, whose refined product demand was increasingly hit by the coronavirus pandemic in recent months.

Japanese refiners and traders, however, are cautiously assessing their domestic oil supply and demand balance as there are concerns that consumers' appetite may not return to normal quickly from their current self-restraint lifestyles.

"We do not expect to see major demand recovery [for gasoline] from the [partial] lifting of the state of emergency," a trader in Tokyo said. "The supply and demand balance will not normalize until major cities like Tokyo and Osaka return to business as usual because there is an overflow of surplus cargoes in the market."

Golden Week

Most recently, Japan's gasoline demand during the Golden Week holidays over late April to early May -- typically a peak driving season for the country -- was severely impacted by the movement restriction measures, which form part of the state of emergency.

Given the sharp reduction in petroleum demand, Japan's crude throughput fell a further 1.9% week on week over May 3-9 to 2.29 million b/d, with its refinery utilization rates falling to just 65% of capacity, according to the the latest Petroleum Association of Japan data.

During the Golden Week, Japan's gasoline shipments are estimated to have dropped 38.8% year on year to 7.04 million barrels in the two weeks to May 9, according to S&P Global Platts calculations based on the PAJ data.

"We see the Golden Week holidays as the bottom of the demand drop," a source at a Japanese refiner said. " Overall products demand is actually recovering, but we are uncertain whether this recovery is sustainable."

Another Japanese refiner agreed that domestic oil products demand has bottomed out in the days after the Golden Week, but it will take time before a full recovery can be achieved.

"The demand recovery will take time not just for gasoline because consumers are likely to refrain from going out for fear of infection [of the coronavirus]," the source said. "They also would not travel."

Jet fuel

The demand recovery for jet fuel is also likely to be slow because consumers' desire for travel has been dampened due to the COVID-19 pandemic, although Japanese airlines may review their suspended flight services, sources with Japanese refiners said.

"The demand recovery for passenger flights will likely be slow because people's mental state will not change quickly with regards to traveling for holidays and business," a source with a Japanese refiner said.

Japan's jet fuel exports dropped 37.8% year on year to 106,452 b/d in March, according to the latest Ministry of Economy, Trade and Industry data, as airlines suspended international flights in the wake of the coronavirus pandemic that slashed travel demand.

The reduction in international flights affected Japan's jet fuel exports because roughly 80%-90% of the shipments are bonded sales.

Two Japanese airlines said Friday that they are carefully reviewing flight demand to consider whether to resume domestic and international services which were suspended after the coronavirus outbreak.

One of the two Japanese airlines said that it has begun considering resuming some services after June, while still monitoring flight bookings.