Japan's crude run rates recover to 71.8%, highest in 16 weeks

Tokyo — Japan's crude run rates in the week ending Aug. 15 shot up to 71.8%, the highest in 16 weeks, supported by the rise in gasoline and jet fuel demand during the country's peak summer holiday season.

Crude runs grew from the 64.4% during the previous week as Japanese refiners boosted crude throughput by 11.6% to 2.53 million b/d, data released Aug. 19 by the Petroleum Association of Japan showed.

The run rate was the highest since 70.1% in the week ending April 25, based on Japan's utilized design capacity of 3.5188 million b/d.

ENEOS, Japan's largest refiner, restarted its sole 145,000 b/d crude distillation unit at the Sendai refinery in the northeast on Aug. 12, following a recent shutdown as a result of glitches at secondary units.

The higher crude throughput and run rates came as Japan's estimated weekly gasoline shipments jumped 23% week on week to 5.47 million barrels in the week ending Aug. 15, with jet fuel shipments surging 82.7% week on week to 489,809 barrels, according to S&P Global Platts calculations based on PAJ data.

Exports of jet fuel came in at 514,025 barrels, more than triple the 155,338 barrels in the previous week. Roughly 80%-90% of Japan's jet fuel exports are bonded sales.

Market sources in Asia attributed the higher run rates to a pick up in domestic air travel during the peak summer holiday season, but noted the resurgence of the coronavirus pandemic could cap further gains.

"In light of the COVID-19 situation this year, I think traveling by car or by plane domestically is the more obvious choice as many countries still have strict border controls in place," a Northeast Asian refining source said. "In China, Japan and [South] Korea, we see that domestic airline activity is recovering but at a very slow pace, but that said, without the resumption of international flights, I doubt we will see any meaningful recovery in the aviation sector."

CAUTIOUS OUTLOOK

Japanese traders and refiners, however, remain cautious on the outlook for a recovery in domestic oil-product demand as consumption of key products such as gasoline was close to 20% lower than last year's peak summer holiday demand season because of the coronavirus pandemic, according to market sources.

"We expect gasoline [demand] to be at a level of 80% of a year ago as the situation will not significantly change in the foreseeable future," said a source with a Japanese refiner.

Several traders reported sluggish gasoline sales in both eastern and western Japan as people refrained from going out during the peak summer holiday season following the country's recent rise in coronavirus infections.

Estimated gasoline shipments in the week ending Aug. 15 week were down 17.4% from a year earlier, with jet fuel shipments down 25.3%, according to Platts calculations based on PAJ data.

Japan's spot gasoline market has been gradually recovering in recent days after a bearish first half of August due to lackluster motor fuel demand. Domestic spot gasoline rack prices in Chiba, east of Tokyo Bay, were Yen 44,600/kiloliter ($67.12/b) on Aug.18, up Yen 900/kiloliter from a week earlier, according to Platts data.

REGIONAL RECOVERY

Across Asia, demand for gasoline has continued to show signs of recovery, with inter-state travel in countries such as Malaysia and Indonesia increasing as people choose to drive domestically because of restrictions on international travel.

Market sources said Indonesia raised its September gasoline imports to 9 million-10 million barrels of gasoline from the 8 million-9 million barrels it had sought in July.

The Malaysia-Singapore border, one of the world's busiest border crossings with movement of 350,000 people a day, re-opened to business travelers Aug. 17, further signaling the normalization of movement in Southeast Asia.

But even with demand inching up from pandemic lows, Chinese gasoline exports and an expected influx of cargoes from the Middle East are weighing on market sentiment.

The FOB Singapore 92 RON gasoline crack against front-month ICE Brent crude futures averaged $1.41/b over Aug. 3-18, marginally lower than the $1.60/b average in July, Platts data showed.