JAPAN DATA: Refiners halt Russian crude shipments, reliance on Middle East increases

Japan put an end to importing crude oil from Russia in June and will likely continue to rely heavily on Middle Eastern supply that refiners find to be the most practical and economical feedstock option in times of high prices and inflation, market participants said.

Imports of Russian crude fell to zero in June, according to data released July 29 by the Ministry of Economy, Trade and Industry, a clear signal that the country is fully committed to phasing out Russian oil purchases as part of the G7 pledge.

The absence of any shipments in June came as little surprise as Japanese refiners had been rapidly phasing out imports of Russian crude, with the country's top two refiners, ENEOS and Idemitsu Kosan, having already suspended new Russian crude oil import contracts, industry and trade sources said.

Taiyo Oil has also suspended signing new Russian crude oil import contracts following the government's decision to phase out and ban Russian oil imports, a company spokesperson told S&P Global Commodity Insights.

Although it's still possible to see some light sweet Sokol and Sakhalin Blend crude cargoes arrive in the second half in small volumes as Japan maintains its stake in Far East Russia's Sakhalin 1 and 2 projects, trading companies will likely aim to sell the equity barrels to third party end-users as Japanese refineries would refuse to process Russian feedstocks, a source at a Japanese integrated trading firm told S&P Global.

Japan received 71,686 b/d of oil from Russia in the first six months of the year, with volumes down 25.1% on the year.

Middle East reliance

Japan's overall crude imports rose 17.5% on the year to 2.28 million b/d in June, with a sharp increase in shipments from major Middle Eastern producers, METI data showed.

Imports from Saudi Arabia, the top supplier, rose 27.5% year on year to 911,671 b/d in June. Saudi Arabian supplies also accounted for 40% of Japan's total crude imports in the month.

Shipments from the UAE rose 39.5% year on year to 903,515 b/d in June, making up close to 40% of the total monthly feedstock import basket.

In times of accelerating inflation, high oil prices and rising shipping and marine fuel costs, the most efficient refinery feedstock procurement strategy would be to buy in bulk and through term contracts from a select few major producers rather than pick up numerous mini spot cargoes from various suppliers across the world, crude and condensate traders at two Japanese refiners said.

Japan took around 2.51 million b/d of crude from Middle Eastern producers in the first half of the year, accounting for 93% of total crude imports in the period.