Japan's crude throughput recovery heralds cautious optimism among traders

Tokyo — Japan's crude throughput rose for the first time in seven weeks as domestic gasoline demand has recovered to a pre-state of emergency level but local traders remain cautious about the sustainability of the demand recovery with the rainy season approaching when driving typically slows.

"We do feel [the gasoline demand] is recovering," a source with a Japanese refiner told S&P Global Platts June 10. "We cannot adjust [refinery runs] swiftly but it is moving toward increasing it."

Japan's crude throughput rose 5.3% week on week to 1.92 million b/d over May 31-June 6, with its refinery utilization rates having also increased from 51.8% a week earlier to 54.5% of overall capacity, the Petroleum Association of Japan said on June 10.

The May 31-June 6 crude throughput marked the first week-on-week increase in seven weeks since the country's crude processing volume last increased in the week of April 12-18.

"Japan refinery run rates are not high at the moment, the gasoline demand is recovering but not enough to [really increase overall] operations," a Japan-based naphtha trader said, noting that the current overseas markets are not supportive to increase middle distillates output for exports.

"Gasoline demand is better than expected, so refiners need to produce or import gasoline, and they can just use a secondary unit like an RFCC or FCC to produce more gasoline," the trader said, adding that naphtha was currently not in demand for gasoline blending.

Several Japanese refineries are also slated to be restarted in coming weeks from scheduled and unscheduled shutdowns.

Demand recovery

Japan's estimated gasoline shipments rose 7.5% from a week ago to June 6 to 5.04 million barrels, a level above the pre-state of emergency level of 4.72 million barrels over April 5-11, according to Platts calculations based on the PAJ data.

The domestic gasoline demand has been recovering in recent weeks during weekends, following the lifting of the state of emergency, which was declared April 7 to curb the spread of the coronavirus pandemic, on May 25 after bottoming out during the Golden Week national holidays over late April to early May, according to local market sources.

In a sign of demand recovery, a record number of gasoline cargoes was traded during the Platts Market on Close assessment process for Japan's domestic rack gasoline assessments on June 10. A total of 33 deals of 50 kl cargoes was traded for 1,650 kl or 10,378 barrels of gasoline, the highest since Platts launched the domestic assessments in December 2016.

On June 10, Japan's domestic gasoline rack prices in Chiba, east of Tokyo Bay, stood at Yen 38,500/kiloliter ($57.04/b), up 37% or Yen 10,400/kiloliter from May 25 when the state of emergency was lifted, Platts data showed.

A number of Japanese traders, however, remained cautious on the outlook for a gasoline demand recovery as most of the country is entering the rainy season in coming weeks, when the demand could be impacted by bad weather.

Sustained pickup

Regionally, the gasoline demand has shown signs of a sustained pickup with more countries easing lockdown restrictions.

Since-mid May, driving activity from Southeast Asian countries such as Vietnam and the Philippines has been on a steady rise, according to mobility data from Apple.

The increase in activity had even prompted companies in these countries to seek a total of around 1.8 million barrels of gasoline on the spot market in June, according to open tenders seen by Platts. The recovery is expected to gain steam in the near term with Malaysia and Indonesia both easing lockdowns this week.

Reflecting the improved sentiment, the FOB Singapore 92 RON gasoline crack against front-month ICE Brent crude futures on June 10 was assessed at plus $2.48/b, a sharp jump from minus $1.38/b seen on June 1, Platts data showed.