Japanese refiners eye Q3 Middle East term crude recovery while staying diversified

Japanese refiners hope to see lifting and nomination of their term Middle East crude normalize throughout the third quarter, and they expect the country's total crude imports to fully recover by August, while the refining industry continues its supply diversification through active US crude purchases, according to the trade ministry and refining industry sources over June 30-July 3.

Japan imported 1.48 million barrels/day of crude in May, down 38.4% from a year earlier, as term barrels of multiple Persian Gulf grades, such as Arab Extra Light, Arab Medium, Arab Heavy, Al-Shaheen, and Kuwait Export Blend, failed to arrive on schedule due to the outbreak of war in the region, according to the latest data from the Ministry of Economy, Trade and Industry, released June 30.

Still, May shipments rebounded sharply from April's record-low 853,329 b/d as shipments from the UAE that bypassed the Strait of Hormuz doubled month over month, while arrivals from rare suppliers such as Azerbaijan, on top of robust US crude purchases, contributed heavily to the recovery, feedstock managers and traders at three Japanese refiners, including the country's top refiner, ENEOS, told Platts, part of S&P Global Energy, over July 1-June 3 citing the METI data.

Growing optimism about US-Iran peace talks and the potential normalization of tanker flows in the Persian Gulf is prompting East Asian refiners to reassess their Middle Eastern crude procurement plans. Japan appears especially keen to resume lifting term supplies of Murban and Das Blend, according to traders at two Japanese refiners' trading offices based in Singapore and feedstock managers at two Japanese refiners, including ENEOS, who told Platts during market discussion and engagement sessions throughout June and July 1-3.

Japan's major refiners, including ENEOS, aim to lift at least 15 million barrels per month of term contractual Murban and Das Blend combined from the August loading and trading cycle, according to a Platts survey of six feedstock managers and traders at four major Japanese refiners conducted over June 19-July 3.

Murban and Das Blend are among the Japanese refining industry's most favored feedstock grades because of their light sour quality, strong middle distillate yield and broad compatibility across the country's refinery systems, the refinery feedstock managers told Platts.

Murban imports averaged around 488,000 b/d over January 2025-April 2026, making it the largest crude grade in Japan's feedstock import pool, METI data showed. Das Blend intake averaged around 385,000 b/d, also underscoring the importance of the light sweet Abu Dhabi grade in Japan's refining slate.

Attractive price structure

Pricing is also supporting the shift. Traders noted that the Dubai-Brent physical price spread has flipped to a discount, improving the relative economics of Middle Eastern crude against Brent-linked grades.

Platts assessed Cash Dubai at an average discount of $4.38/b to the sweet crude benchmark Mo1 cash Brent in June, down from May's average of minus 88 cents/b and from the first-quarter average of $9.04/b.

The more favorable spread is making regional sour grades more attractive for spot purchases, Singapore-based traders said, highlighting that Abu Dhabi grades such as Murban, Das Blend and Upper Zakum are typically sold on more flexible, destination-free terms, enabling cargoes to trade freely in the spot market and to be resold in the secondary market.

Meanwhile, Platts assessed Murban crude at a discount of $2.75/b to front-month Dubai on July 1, marking the lowest price differential since minus $3.06/b on May 13, 2020. The light sour Abu Dhabi crude was last assessed at a discount of $2.65/b on July 2.

Record high US crude intake

Although Persian Gulf crude logistics are improving, Japan's refining industry still needs to reduce its dependence on Middle East crude to below 90%, as the latest US-Iran conflict and Strait of Hormuz tanker flow disruptions serve as another reminder of how crucial supply diversification is, refinery feedstock managers said.

In that context, US crude is expected to remain the most reliable balancing component. METI data showed that Japan's US crude intake reached a record high of 331,000 b/d in May, underscoring that refiners have already built momentum in procuring from North America.

The US is by far the largest non-Middle Eastern crude supplier to Japan, and the industry as a whole should aim to secure, on average, at least three VLCCs per month, or about 200,000 b/d, of US crude in 2026, Platts reported previously.

Apart from US crude, Japan imported 20,908 b/d of Azeri light crude in May, marking a rare purchase of the light sweet grade from Azerbaijan in the Mediterranean market, METI data showed.

The light sweet Azeri crude was discharged at the 153,000-b/d Negishi refinery last month, the ENEOS feedstock management source told Platts.

Japan's major crude suppliers in May

Japan's major crude suppliers over Jan-May

Source: Ministry of Economy, Trade and Industry