Japan's estimated Oct kerosene demand jumps 24% on year on colder weather: ENEOS

Tokyo — Japan's estimated kerosene demand for October jumped 24% year on year to around 880,000 kiloliters, or 178,549 b/d, as heating demand picked up due to lower temperatures, the country's largest refiner ENEOS said Oct. 29.

The Petroleum Association of Japan's president Tsutomu Sugimori said Oct. 22 that Japanese refiners are witnessing "favorable" kerosene cargo shipments in October, allowing most domestic production to be stockpiled ahead of the winter demand season.

"We expect to see kerosene stocks peaking around November," Sugimori said.

Japan's weekly kerosene shipments for the four weeks to Oct. 24 are estimated at 4.18 million barrels, 54.5% higher than the 2.71 million barrels in the previous four weeks to Sept. 26, according to S&P Global Platts calculations based on PAJ data released Oct. 28. The estimated kerosene shipments for the four weeks to Oct. 24 were 17.1% higher than a year earlier, Platts calculations showed.

Kerosene stocks slid 2.2% week on week to 18.18 million barrels in the week to Oct. 24, the PAJ data showed. The stocks were up 3.4% from a year ago, according to Platts data.

Japan's estimated kerosene demand for October remains lower than the corresponding month in 2018 of about 930,000 kl, according to the Ministry of Economy, Trade and Industry data.

Looking ahead, Japan's kerosene demand is set to pick up, with temperatures in 10 of the country's 12 regions forecast at below the 30-year average over November-January, according to the latest weather forecast released Oct. 23 by the Japan Meteorological Agency.

"There's good demand [from Japan] for kerosene [imports]..... and it will get better next month due to cold weather," an industry source said Oct. 29.

Agreeing a second trader said: "They [Japanese] are building inventory to prepare for the expected severe winter. Last year winter was warm."

INCREASED TRADE

Reflecting the uptick in trade activity, small 5,000-10,000-mt lots of kerosene for loading in November were heard to have changed hands at around a premium of $4/b to Mean of Platts Singapore jet fuel/kerosene assessment, FOB Korea. The higher premiums for kerosene/dual-purpose kerosene spot barrels have similarly buoyed cash differentials for jet fuel parcels.

Fresh selling indications for jet fuel barrels for November loading were heard pegged at plus 20 cents/b to MOPS jet fuel/kerosene assessment, FOB, with market sources noting that jet fuel cargoes with high flash point were commanding a premium of up to 50-60 cents/b, FOB. The FOB Korea jet fuel cash differential was assessed at parity to MOPS at Asian close Oct. 29, up 5 cents/b day on day.

"I think due to limited supply plus refiners are more keen to produce kero for Japan," a regional trader said. The recent spike in jet fuel prices in the US due to a shortage has also worked to propel the higher offers, trade sources said.

In spite of the improving margins for the middle distillate, industry sources said regional refineries were likely to maintain current production rates given the poor gasoil and gasoline cracks owing to languid conditions for motor fuels.

FALL NARROWS

Japan's estimated gasoline demand fell 4% year on year to 3.79 million kl in October, while estimated gasoil demand was flat over the same period at 2.9 million kl because of complications caused by the base effect of a sales tax hike in October last year and the coronavirus pandemic, an ENEOS spokeswoman said.

The estimated October gasoline demand is lowest for the month since 1991, while estimated gasoil demand was last lower in October 2017, according to METI data.

Between September and October 2019, the month-on-month change in gasoline and gasoil demand was greater than usual because of the increased demand in September ahead of the sales tax hike and a subsequent fall in October.

Still, the year-on-year fall in the estimated gasoline demand in October narrowed from a 9% drop in estimated gasoline demand released by Sugimori Oct. 22 for September.

The coronavirus-related year-on-year drop in Japan's September gasoline sales was also exacerbated by the rush to buy in September 2019 ahead of a tax hike, ENEOS said Sept. 29.

The latest September gasoline demand estimate from Sugimori, who is also chairman of ENEOS Holdings, was lower than ENEOS' announced estimate of a 7% year-on-year drop for the month on Sept. 29.