Japanese refiners to receive full July volumes from Saudi Aramco: sources

Tokyo — At least two Japanese refiners have received confirmation from Saudi Aramco they will receive full volumes for July loading, company sources told S&P Global Platts June 15, a strong indication the country may not see the kind of cuts in crude volumes seen in June.

There had been market talk of allocation cuts to customers in Asia, according to Japanese and other regional market sources.

OPEC+ recently extended the coalition's 9.6 million b/d output cut agreement through July. Under the deal, Saudi Arabia will hold its crude production to 8.49 million b/d.

Some Japanese refiners were said by sources to be seeking full Saudi crude allocations for July in the wake of recent demand recovery from the coronavirus pandemic, according to company sources.

Japan's crude throughput rose for the first time in seven weeks at the start of June, with domestic gasoline demand recovering to pre-state of emergency levels. Crude throughput was expected to increase further in coming weeks as several refineries are slated to be restarted from scheduled and unscheduled shutdowns.

"We are grateful of the [supply volume]," one of the Japanese refiner sources said, noting the recovery in demand for oil products.

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.

Japan's estimated gasoline shipments rose 7.5% to 5.04 million barrels in the latest week, above the pre-state of emergency level of 4.72 million barrels over April 5-11, according to calculations by Platts based on Petroleum Association of Japan data.

Strengthening spreads

Market participants were digesting June 15 Saudi Aramco's crude allocations for July, which has just been issued to term holders.

Traders have indicated that large cuts to allocation of Saudi barrels could provide further support to the Middle East crude market, which has already strengthened from the previous month.

Reflecting an uptick in sentiment on the Middle East crude market, the Dubai crude cash/futures (M1/M3) spread rose from a one-week low at the Asian close on June 15, Platts data showed.

The spread -- a key indicator of spot market sentiment for sour crude in Asia -- was assessed at 68 cents/b at the 4:30 pm (0830 GMT) Singapore close, up from 62 cents/b on June 12.

Last week, Saudi Aramco raised the official selling price differentials of its crude heading for Asia in July by $5.60/b-$7.30/b from the June OSP.

It sets the price differential of Asia-bound Arab Light crude at plus 20 cents/b against the average of the Dubai and Oman benchmarks over July, up by $6.10/b from the June price and higher than the $2-$5/b increase that traders had expected, according to a Platts survey.

June cuts

Previously, Japanese refiners have received larger-than-expected cuts to their June-loading 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 told at least one Japanese refiner it will reduce its June-loading crude allocations by 20%-40%, with the cuts being made across all grades and with larger cuts to heavier grades.

"The June loading [volume] was shocking," a source with a Japanese refiner said.

Sugimori, speaking in his capacity as JXTG Holdings president, said May 20 the company had a good balance of product supply and demand due to refinery run cuts and maintenance, coupled with reduced crude supply from its major term suppliers, such as Saudi Arabia.