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Analysis: COVID-19 state of emergency extension set to slow Japan gasoline demand

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Analysis: COVID-19 state of emergency extension set to slow Japan gasoline demand

Highlights

43% of Japan's population to be under extended state of emergency

Japan requests to trim further Olympics delegates from abroad: PM

Estimated May gasoline demand up 16% on year: ENEOS

Japan's gasoline demand will continue to be slow in June, albeit also increasing from a year ago, with the country having decided to extend its COVID-19 state of emergency to June 20 after marking double-digit year-on-year growth in May.

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Japan's May gasoline demand, which increased significantly during the Golden Week national holidays at the beginning of the month, has slowed in recent weeks, and the trend will likely continue into June, sources with Japanese refiners told S&P Global Platts.

"We are facing uncertainty surrounding the coronavirus pandemic in the middle of the third round of the state of emergency, which is expected to extend again," Petroleum Association of Japan President Tsutomu Sugimori told an online press conference May 27.

"As the public refrains from going out, domestic oil products demand has been hovering at a low level especially for jet fuel and gasoline," Sugimori said.

State of emergency

Japan decided May 28 to extend its state of emergency in Hokkaido, Tokyo, Aichi, Osaka, Kyoto, Hyogo, Okayama, Hiroshima and Fukuoka from the May 31 expiry to June 20 as well as deciding to extend its COVID-19 priority measures on Saitama, Chiba, Kanagawa, Gifu and Mie for the same period, Prime Minister Yoshihide Suga said.

Together with Okinawa, 43% of Japan's population will be subject to the state of emergency until June 20, and the extended priory measures account for 21% of Japan's total population.

"Japan's economic outlook has been dampened by the extended state of emergency, with oil demand likely to remain muted in the near term," according to JY Lim, oil markets adviser at Platts Analytics.

"However, Platts Analytics still expects Japanese oil demand to grow year-on-year by 120,000 b/d in 2021, after dropping sharply last year, marking the first positive growth since 2012 with the holding of Olympic games providing some support. Despite the positive growth, Japan's expected demand in 2021 will still be way below 2019 levels," Lim said.

Olympics measures

With the Tokyo Olympics less than two months away, Suga said Japan is taking a number of measures to ensure the safety of the people involved in the event, right from ensuring the vaccination of athletes and delegates, to limiting the number of arrivals and designating their accommodation and transport within the country.

The number of foreign athletes and delegates for the Olympics and Paralympic Game has been more than halved to 78,000 people from 180,000 people initially, said Suga, adding that Japan is requesting a further reduction.

The Olympics and Paralympic Games have been seen by industry sources as key variables in the country's summer transport fuel and energy demand mix, with almost all parts of the country also forecast to experience relatively high temperatures over June-August.

Japanese oil industry sources have mixed views over the likely impact on gasoline demand from the games, with some expecting demand to increase, while others see a negative impact from the various traffic restrictions.

June demand

The Japanese refiners surveyed by Platts expect the country's gasoline demand to rise at least more than 2% from a year ago in June, down from the year-on-year double-digit growth they saw in May amid expectations of slowing domestic demand.

"As the state of emergency will be extended, we expect the [gasoline] demand will be as slow as the level seen after the Golden Week national holidays in June," said a source with one Japanese refiner.

Estimated gasoline shipments to the domestic market fell 7.8% to 17.82 million barrels in the four weeks to May 22, down from 19.32 million barrels in the previous four weeks to April 24, according to Platts calculations based on PAJ data.

Japan's estimated gasoline demand stood at 3.59 million kl or 728,399 b/d in May, up 16% from a year ago, as the country's gasoline demand rebounded from a sharp drop a year ago, the largest Japanese refiner ENEOS said May 28. Estimated May gasoline demand remained a 10% drop from May 2019.

Japan's first state of emergency measures in April-May 2020 sent gasoline demand in May last year to its lowest for the month since 1985 and marked the lowest monthly sales volumes throughout last year.

May 2020 gasoline sales dropped 22% year on year to 628,693 b/d, down from 663,960 b/d in April, according to data from the Ministry of Economy, Trade and Industry.

ENEOS said Japan's estimated gasoil demand also rose 7% from a year ago to 2.58 million kl in May but the estimated demand was still down 4% from May 2019.

"Gasoil demand, which has had an impact from the state of emergency, is bearish because of reduced run rates at industrial plants and low distribution," said the Japanese refiner source, adding that the company's gasoil demand in June would be flat on the year.