COVID-19 priority measure expansion set to slow Japanese gasoline demand

Japan's latest decision to impose COVID-19 priority measures additionally on Tokyo and other populous prefectures Jan. 19 is set to slow the country's gasoline demand, dampening the recovery over recent weeks.

Japan has decided to start another round of the COVID-19 priority measure on 13 regions including Tokyo, Kanagawa, Aichi, and Saitama, four of the five largest populated prefectures, over Jan. 21-Feb. 13 amid the COVID-19 cases topping 30,000 for the first time.

The latest COVID-19 priority measures will now cover one-third of Japan's overall prefectures, or 46% of the total population.

Japanese refiners surveyed by S&P Global Platts said Jan. 19 that the refiners were revising their gasoline demand outlooks lower for January following the impositions of the COVID-19 priority measure.

The Japanese refiners had initially expected their January gasoline demand to rise about 5% from a year ago, when the domestic gasoline demand dropped from the COVID-19 state of emergency measures on Tokyo and other populous prefectures.

"We expect to have impact from the priority measures on the gasoline demand," said a source with a Japanese refiner, which now sees its gasoline demand slowing down to about a 3%-4% rise from a year ago, down from a 5% increase it had expected earlier.

Similarly, another Japanese refiner was also revising lower its January gasoline demand outlook from 4%-5% year-on-year growth to a 1%-2% increase for the month due to the imposition of the COVID-19 priority measures.

While no Kansai prefectures in western Japan are subject to the latest round of priority measures, an Osaka-based trader said: "The market sentiment will go sour if restraints are placed on big cities like Tokyo."

Osaka, Kyoto, and Hyogo, the main constituents of the Kansai district, decided not to ask the priority measure from the government, though their combined new COVID cases were reaching new highs in recent days.

Though it remains unclear how the measure will affect domestic oil markets, JY Lim, an oil markets adviser at S&P Global Platts Analytics, took a positive view on the markets.

"Japan's gasoline demand is expected to slow in the near term with the expansion of quasi-state of emergency to more prefectures including Tokyo, but we still expect demand to improve in the second half of 2022 as the COVID outbreak gets under control," Lim said.

The latest imposition of the COVID-19 priority measures came a little over a week after Japan had imposed the restrictions on Hiroshima, Yamaguchi, and Okinawa prefectures on Jan. 9.

Newly infected cases hovered around 100-200 in the first half of December 2021. Since then, infections skyrocketed to 32,197 as of Jan. 18, as the omicron variant spread across the nation.

Restaurants and bars are required to close early or not serve alcohol, though governors are responsible to implement specific restrictions.