Japan's May gasoline demand at 37-year-low, slow demand recovery in sight

Tokyo — Japan's estimated gasoline demand in May fell to the lowest monthly level in 37 years as consumers refrained from traveling at the beginning of the month, a period when driving activity typically peaks due to public holidays.

Local refiners and traders remained cautious on the gasoline demand recovery prospect in June as people may not actively go out amid concerns over the coronavirus infection despite the recent lifting of the state of emergency.

"We expect the coronavirus pandemic to have an impact [on the gasoline demand] for around a year and the demand is likely to continue making large drops from a year ago," a trader said Thursday. "With the summer demand season approaching, we expect to see a gradual demand recovery."

Japan on May 25 lifted the remaining state of emergency measures for Tokyo, Chiba, Saitama, Kanagawa in the east and Hokkaido in the north, ahead of their May 31 expiry after the state of emergency was first declared April 7.

"The lifting of the last five prefectures from the state of emergency early this week should provide some support to gasoil demand as they account for about a third of the country's GDP," S&P Global Platts Analytics said in a note on Wednesday. "Still, our current base case assumes a contraction in 2020 GDP by 4.5% and gasoil demand is likely to stay weak."

While Japanese refiners are keeping their gasoline output relatively short over the ailing domestic demand, at least one refiner said it does not rule out the possibility of importing the motor fuel should the recovery exceed its expectations.

"Following the lifting of the state of emergency, we expect the [gasoline] demand to recover gradually from June," a source with the Japanese refiner said Thursday. "We do not expect to see a need for imports from a V-shape recovery but we do not rule out an option for the product import if the demand recovery exceeds our expectation."

May demand

Japan's gasoline demand in May is estimated at 2.92 million kl, or 592,459 b/d, down 27% year on year, with gasoil demand estimated down 11% year on year to 2.4 million kl, or 486,952 b/d, JXTG Nippon Oil & Energy, the country's largest refiner, said Thursday.

That would put gasoline demand at the lowest for the month since 1983, when domestic gasoline sales stood at 2.88 million kl, and gasoil demand at the lowest for the month since 2010, when sales stood at 2.37 million kl, according to the Ministry of Economy, Trade and Industry data.

JXTG attributed the drop in gasoline demand to the state of emergency measures that had requested the public to refrain from going out during the Golden Week national holidays over late April to early May. The gasoil demand also slid as the restraint measures reduced the fuel demand for public buses and construction activity.

Specifically over the Golden Week national holidays, Japanese gasoline demand plunged 34% year on year while gasoil demand increased slightly from a year earlier because of greater demand for home delivery despite less demand for holiday travel, according to Tsutomu Sugimori, president of JXTG Holdings, the parent of the refining unit.

Potential import

A potential increase in Japanese appetite for imports is considered supportive to the Asian gasoline complex, with buyers potentially looking to purchase barrels in the wider region to fill their requirements, market sources said.

South Korean refiners – which are the nearest source of cargoes for Japan -- are slated to go into a period of heavy maintenance in June.

"Hopefully the increased demand will spill over to here [Singapore], and help us absorb some supply," a Singapore-based source said. Of late, the Asian gasoline complex has seen a fresh wave of bearishness as participants questioned the extent of the regional demand recovery.

The FOB Singapore 92 RON gasoline crack against front-month ICE Brent crude futures was even assessed at minus $1.89/b at the 0830 GMT Asian close Wednesday, despite momentarily recovering to positive territory on March 19 and March 20, according to Platts data.

The Asian gasoil market has rebounded from record lows, with the strength primarily stemming from tighter supply balances in the region. As such, traders said the region is able to tackle excess supplies by slowly digesting volumes thanks to the bursts of demand that have emerged following the rollback of some coronavirus-related containment measures in Asian countries.

At the Asian close Wednesday, the cash differential for FOB Singapore 10 ppm sulfur gasoil cargoes was assessed up 31 cents/b at a two-month high of minus 29 cents/b to the Mean of Platts Singapore gasoil assessments.