Japan's JXTG to seek spot barrels for any shortfall in July after OPEC+ cuts

Tokyo — Japan's largest refiner JXTG Nippon Oil & Energy said June 8 it will supplement any shortfall in July term crude oil requirements as a result of the near 10 million b/d OPEC+ production cut extension by purchasing cargoes from the spot market.

"Even in the event of facing supply cuts from our direct term contracts, we intend to procure our crude requirements from spot markets so that we do not foresee a major obstacle," a company spokesman told S&P Global Platts.

Japan sources roughly 90% of its crude imports from the Middle East, of which 70%-80% of the supplies are based on term contracts.

OPEC and its allies have agreed to maintain their record oil cuts through July -- albeit without Mexico -- to help steer the market through its nascent recovery from the coronavirus pandemic.

Ministers on June 6 approved a one-month rollover of their now 9.6 million b/d production cut accord, brushing aside Mexico's defection from the pact and receiving pledges of improved compliance from Iraq, Nigeria, Angola and Kazakhstan. The cuts -- originally 9.7 million b/d including Mexico -- had been scheduled to taper to 7.7 million b/d in July through the rest of the year.

For June loadings, Japanese refiners have received "larger-than-expected cuts" to their term crude supply from OPEC producers, keeping them balanced against plummeting domestic demand due to the coronavirus pandemic, Tsutomu Sugimori, president of the Petroleum Association of Japan, said May 22.

Saudi Aramco has informed at least one Japanese refiner that it will reduce its June-loading crude allocations by 20%-40%, with the cuts being made across all grades and larger cuts to heavier grades.

Demand recovery

Japan's gasoline demand has shown some recovery in recent weeks, following the lifting of the state of emergency on May 25 after bottoming out during the Golden Week national holidays over late April to early May.

The domestic gasoline shipments were estimated at 4.68 million barrels for the week over May 24-30, up 11% from the previous week, according to S&P Global Platts calculations based on the PAJ data.

The estimated May 24-30 gasoline shipments recovered to 4.72 million barrels over April 5-11, almost around the same level prior to the state of emergency, which was imposed on April 7.

Asked whether JXTG would consider importing gasoline beyond July during Japan's demand season amid signs of a gasoline demand recovery, the spokesman said: "We have a system in place to ensure stable supply for any fluctuations in demand."

Japan's spot gasoline price has also turned to an upward trend in recent weeks amid rising crude prices, coupled with demand recoveries during weekends amid tight domestic production.

"After the lifting [of the state of emergency], our [gasoline] demand improves about 10% from the worst as our weekend sales slightly increased," said a Japanese trader.

Another Japanese trader said: "The recovery is still on the way as the [overall] demand remains weaker than before but we are increasingly seeing more orders [for sales]."

As of June 8, Japan's domestic gasoline rack prices in Chiba, east of Tokyo Bay, stood at Yen 36,600/kiloliter ($53.15/b), up 30.2% or Yen 8,500/kiloliter from May 25 when the state of emergency was lifted, Platts data showed.

Japan's crude throughput dropped 7.7% week on week to 1.82 million b/d over May 24-30, with its refinery utilization rate falling to just 51.8% of the 3.5188 million b/d capacity, the Petroleum Association of Japan said June 3.