Tokyo — Japan's Ministry of Economy, Trade and Industry is set to sign a deal with state-run Kuwait Petroleum Corp. on Dec. 1 to lease out 500,000 kiloliter (3.14 million barrels) of storage capacity, a METI source told S&P Global Platts on Nov. 27.

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The deal will give Kuwait flexibility to meet prompt demand from Japan and other Asian markets as regional consumption gradually recovers from the coronavirus pandemic.

The latest deal with KPC will come as METI has been looking to increase the number of oil producing countries, along with Saudi Arabia and Abu Dhabi, storing their oil in Japan for commercial purposes in exchange for prioritizing supply to Japan in the event of an emergency.

The latest deal will bring Japan's leased oil storage capacity to the three Middle East producers to a total of 3.1 million kiloliter, or 19.5 million barrels. METI had earlier raised its leased storage capacity to Saudi Aramco and Abu Dhabi National Oil Co. to 1.3 million kiloliter, or 8.2 million barrels each.

Prompt demand

The expected signing of the storage deal with KPC comes at a time when Japanese refiners are seeing a need to procure crude oil to meet prompt kerosene demand increase.

Japanese refiners have raised their crude procurements to a seven-month high in November as local refiners have boosted their crude procurement from the Middle East in preparation for the country's winter heating demand.

The bulk of Japan's incremental crude demand is from the Middle East, where it sources roughly 90% of its requirements. This has been mostly fulfilled for meeting the country's peak heating demand over December-February, traders and sources with Japanese refiners said previously, adding that any uptick in prompt demand can be sourced from Russia's Far East.

Middle East focus

Japan's largest refiner ENEOS, for example, intends to focus on procuring crude from the Middle East in 2021 because of its relatively shorter voyage time compared with other markets such as the US, according to a company executive.

"It is difficult to buy crude oil from outside of the Middle East," Kayo Fujiwara, executive officer and general manager, crude trading and shipping, at ENEOS said earlier in the week, adding that while the market situation remained uncertain amid the coronavirus pandemic, it was still weak.

Japan's crude imports from the Middle East have risen above 90% of the total imports most recently this year as it has slashed shipments from elsewhere including Russia, Americas among others.

Japan imported an average of 240,038 b/d from Kuwait, the third-largest crude supplier to Japan so far this year, accounting for roughly 10% of its total imports of about 2.5 million b/d over January-September, according to METI data.

The Japanese imports of Saudi crude averaged at 965,594 b/d during January-September, with the UAE crude imports averaging at 819,290 b/d, making the two countries its top two suppliers. Japan's crude imports from the top three producers accounted for 81% of total imports during the nine-month period.