Tokyo — Japan's decision to expand the state of emergency to the central and western regions Jan. 13 will further exacerbate its ailing gasoline demand, but will be supportive of kerosene demand for heating amid severe cold spells hitting the country.
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The latest imposition of the state of emergency to curb the spread of the coronavirus pandemic comes days after Prime Minister Yoshihide Suga declared restriction measures on Tokyo and its three adjacent prefectures from Jan. 7 to Feb. 7, amid a sharp rise in new COVID-19 cases in populous areas.
The expanded area of the state of emergency, announced by the Japanese premier on Jan. 13, comprises Osaka, Kyoto and Hyogo in the west, Fukuoka in the southwest, as well as Gifu and Aichi in the central and Tochigi in the east.
Together with Tokyo, Kanagawa, Saitama and Chiba, over 55% of Japan's total population of over 130 million is under a state of emergency.
During the state of emergency, Japan will suspend its business/residential track entry from 11 countries/regions, Suga told a press conference Jan. 13.
The latest state of emergency declaration comes at a time when the country's demand for refined products is on the path to recovery from levels not seen in decades, as the pandemic had taken a toll on consumption.
"The expansion of the state of emergency to a wider area will dampen gasoline demand further, as more people will be urged to stay at home to prevent the spread of the coronavirus," said JY Lim, oil market adviser at S&P Global Platts Analytics.
"Refiners will need to adjust crude runs and refinery output in their balance to meet higher winter heating demand from severe cold spells and weaker demand for transportation fuels," Lim said.
While Japanese refiners are assessing the impact from the expanded state of emergency on refined products demand, they have shared the view that the restrictive measures will hit gasoline sales the most but will support kerosene amid cold spells.
"Gasoline sales will basically decline as a result of the state of emergency," said a source with a Japanese refiner. "However, it would not fall as much as it did during the last round last year because the area remains limited," the source said.
Japan's gasoline demand plunged 22.4% year on year to 628,693 b/d in May -- the lowest monthly level in 35 years, according to Ministry of Economy, Trade and Industry data, as pandemic restrictions meant activities were severely curtailed.
Gasoline was among the hardest hit refined products during the last state of emergency over April 7-May 25 as the public refrained from traveling for leisure and business, but demand has been gradually recovering in recent months.
The expansion of Japan's state of emergency mirrors a similar increase in restrictions across Asia recently, as COVID-19 cases rise, threatening to derail regional demand-side recovery.
Malaysia, for example, declared a state of emergency on Jan. 12, a day after Indonesia -- Southeast Asia's largest buyer of gasoline -- started another two-week lockdown in the country's most populated island of Java, in another attempt to curb the spread of the virus.
China, also locked down Hebei province's capital, Shijiazhuang, on Jan. 7, after the number of cases started to rise again, while several cities and towns in these provinces -- Heilongjiang, Hebei, Liaoning, Shanxi, Inner Mongolia, Sichuan and Anhui -- said before Jan. 11 that they were handling the situation on a war footing, according to Xinhua news agency.
Reflecting the uncertain near-term outlook for Asian gasoline, the front-month February-March gasoline swap spread has remained on the backfoot, staying locked in a contango structure of 13 cents/b at the close of Asian trade Jan. 12, according to Platts data.
The expansion of the state of emergency will, however, see a rise in kerosene demand, industry sources said.
"Personally, I think that the state of emergency will bring kerosene demand higher as more than half the country will be urged to stay at home as much as possible," a source at a South Korean refining company said. South Korea is the main kerosene exporter to Japan.
"But that said, I don't think the demand will surge as the main demand center for kerosene is still in north Japan where it is the coldest during winter," the source said.
In light of the ongoing cold spell, Japan's estimated kerosene shipments to the domestic market surged 55.7% to 12.40 million barrels in the four weeks ended Jan. 2, which was also up 7.5% from a year ago, Platts calculations based on the latest Petroleum Association of Japan data showed.
The latest month-long weather forecast released Jan. 7 by the Japan Meteorological Agency showed that Japan will experience below 30-year average temperatures across the country at least until Jan. 15.