Japanese refiners may negotiate with suppliers to delay June-loading crude: PAJ chief

Tokyo — Japanese refiners may ask term crude suppliers to delay some cargoes loading in June amid plummeting demand for oil products due to COVID-19, Takashi Tsukioka, president of the Petroleum Association of Japan, said.

"With tanks having been filled up, we are getting left with an option to cut refinery runs as it is increasingly getting difficult to purchase crude. We expect to see such actions, including for term contracts, as delaying loading schedules after June," Tsukioka told a news conference Friday.

"While [Japanese] refiners are lifting their term contractual volumes by May, there is a chance that the refiners might not be able to lift the term contractual volumes after June. The refiners would consider their nominations for June [loading] in May, depending on their sales and tank capacity."

"We are in the situation [of] seeing no tank capacity to purchase crude, even if it is cheap," he said, adding Japan's national petroleum reserves were also being filled up.

Japan's crude oil imports total about 3 million b/d with roughly 90% from the Middle East, of which 70%-80% of the supplies are based on term contracts.

"For now, there is no reason to take additional barrels," said a source with a Japanese refiner. "Margins are quite poor and in the event they do improve, there are ample barrels around in the market."

Spreads for a range of Middle East crude grades hit fresh record lows at the end of the Platts Market on Close assessment process in Asia Thursday, with the trading outlook for the June cycle looking weak despite producers slashing official selling prices.

June cash Murban was assessed Thursday at a $10.13/b discount to June Dubai futures at 4:30 pm in Singapore (0830 GMT), the lowest assessment since S&P Global Platts began publishing it in July 2018. The spread ticked up to minus $9.94/b Friday.

Run cuts

Tsukioka's comments came as Japanese refiners have been increasingly forced to cut runs as the coronavirus pandemic hits domestic oil product demand.

Japan's crude throughput fell 1.6% week on week to 2.66 million b/d over April 5-11, according to PAJ data. That throughput was the lowest in 45 weeks, being last lower at 2.58 million b/d during the spring refinery turnaround season in the week of the May 26 to June 1.

The latest weekly figure pointed to a refining capacity utilization rate of 75.6%, based on Japan's utilized design capacity of 3.5188 million b/d, down from 76.9% a week earlier.

While Japanese refiners are heading into the spring refinery maintenance season, they have already reduced their crude runs to the lowest possible level without actually shutting refineries, Tsukioka said.

Sluggish demand

Commenting on the domestic market as chairman of Idemitsu Kosan, the second-largest Japanese refiner, Tsukioka said gasoline demand was expected to drop around 20% year on year over April-June following the government's declaration of the state of emergency until May 6.

Tsukioka said the expansion of the state of emergency on Thursday would accelerate the drop in the gasoline demand during the Golden Week national holidays as drivers will be restrained from going out across the country.

The latest declaration followed the earlier state of emergency measures on April 7 for Tokyo, Kanagawa, Saitama and Chiba in the east as well as Osaka, Hyogo and Fukuoka in the west for the month-long period.

Idemitsu Kosan also sees Japan's refined products demand dropping around 20% from a year ago over April-June, with jet fuel demand plunging more than 50% and gasoil oil falling 10%, Tsukioka said.