Japan's spot gasoline trade hits record high in Oct as supply surplus increases

Tokyo — The number of domestic spot gasoline cargoes deals concluded during the Platts Japan Market on Close assessment process hit a record high in October and has remained high to date in November amid an increasing surplus of supply in the market, market sources said Nov. 6.

A sharp drop in domestic demand caused by the coronavirus pandemic is pressuring the country's refiners to loosen the taps after keeping spot gasoline supply tightly held for several years due to a series of consolidations.

"We are seeing surplus spot barrels in the market," a major trader based in Tokyo said, adding that the trend will continue for the foreseeable future.

Another trader in Osaka attributed the increase in spot trade activity to the gradual gasoline demand recovery in the country.

"Gasoline demand is on the course of recovery," the Osaka-based trader said. "It is clearly better compared to levels over April-May," he said of the gasoline demand drop during Japan's state of emergency restrictions.

RECORD HIGH

A record number of spot gasoline cargoes were traded during the S&P Global Platts Market on Close assessment process for Japan's domestic rack gasoline assessments in October.

A total of 187 deals of 50 kl cargoes, for a combined 9,350 kl or 58,810 barrels of gasoline, was traded during the MOC assessment process in October, the highest since Platts launched the assessments in December 2016.

In a sign the momentum was continuing, 60 deals have been made in the first week of November to date.

The number of gasoline deals during the Japanese MOC process has been rising steadily on a month-on-month basis since the lifting of the country's state of emergency restrictions on May 25.

The October deals were up from the previous record high of 161 deals in September, having risen from 78 deals in June, 109 deals in July and 114 deals in August.

The gasoline deals plunged to 62 deals in April and 33 deals in May during the state of emergency restrictions.

OFFERS INCREASE

In the wake of the coronavirus pandemic, some local traders and distributors have received offers from a few local refiners including Cosmo Oil, which have led to an increase in supply in the spot market, according to traders familiar with the matter.

"It cannot be denied that surplus cargoes are flowing into the spot market," said a company source at Cosmo Oil Marketing, the marketing unit of Cosmo Energy Holdings. "We did not have any choice but to increase spot sales because of the reduced demand," the source added.

Asked whether Cosmo would maintain its spot sales beyond November, the source said: "It will continue as long as the demand under the coronavirus pandemic does not change."

DEMAND GAP NARROWS

Japan's estimated gasoline demand fell 4% year on year to 3.79 million kl or 768,979 b/d in October, when it was affected by complications caused by the base effect of a sales tax hike in October last year and the coronavirus pandemic, according to largest refiner ENEOS.

Still, the year-on-year fall in estimated gasoline demand in October narrowed from September.

Domestic gasoline sales fell 4.6% month on month and 7.2% year on year to 849,897 b/d in September -- the lowest for the month since 1993, according to the Ministry of Economy, Trade and Industry.

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.