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COVID-19 state of emergency expansion, extension to hit Japan peak gasoline demand: sources

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COVID-19 state of emergency expansion, extension to hit Japan peak gasoline demand: sources

Highlights

August gasoline demand rises 1-2% on year: source

Daily COVID-19 infections hover around record-high levels

Japan's gasoline demand in August is set to slow down after the state of emergency that was imposed in Osaka and the three prefectures surrounding Tokyo -- Kanagawa, Chiba and Saitama -- came into effect on Aug.2. The expansion of the state of emergency, which will be in place till Aug.31, to the four new areas was the government's latest move to contain the recent surge in coronavirus cases.

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The country's gasoline demand for August, the peak demand season, could still increase on the year but will likely be slowed as the public is expected to refrain from going out during the summer holiday season, traders told S&P Global Platts.

"The demand will be even weaker as the government calls on people to refrain from going out," a Tokyo-based trader said. "However, since movement restrictions were stricter last year, gasoline demand in August may exceed the results of the same month of the previous year."

A refiner source expects gasoline demand in August to increase 1-2% year on year, taking into account the extension and expansion of the state of emergency.

"Although gasoline demand has been sluggish, the trend that exceeds last year's results has continued since March this year, and it is expected that the situation will be maintained in August," the refiner source said.

ENEOS, Japan's largest refiner, estimates the country's gasoline demand in July to have been 1% higher year on year at 4.08 million kiloliters, or 827,819 b/d, but down 5% from the same month in 2019, it said on July 29.

With the expansion to the four new areas, the government's latest emergency measures took effect on six prefectures, including Tokyo and Okinawa. The state of emergency for Tokyo and Okinawa had earlier been scheduled to expire on Aug. 22. Under the stronger measures, restaurants and bars serving alcohol have been asked to close down.

In addition, the government has put five prefectures -- Hokkaido, Kyoto, Hyogo, Ishikawa, and Fukuoka -- under the less stringent priority measures from Aug. 2 to the end of the month.

Japan's new COVID-19 infections have been hovering around record-high levels in recent days. It reached the daily record of 12,341 cases on July 31, but stood at 10,175 cases on Aug. 1, according to Japanese public broadcaster NHK.

Regional impact

However, the impact of Japan's COVID-19 measures on the regional gasoline complex is expected to be limited, industry sources said.

"Japan had already restarted a number of its downed refineries in July. With the new restrictions, they are even less likely to import," one Singapore-based market source said.

In June and July, Japan-based refiners were noted to have sought cargoes from the regional market to tide over expected increases in demand amid the commencement of the Tokyo Olympics, while domestic refining capacity lagged amid several refinery outages.

"The impact of the Olympics has already been factored in. I don't hear anymore strong demand from Japanese refiners for August onward," a second market source added.

"If the domestic situation really sinks badly, Japanese refiners might turn back to exports although the impact would only be felt further on in the month as the Olympics are still going on," the first source added.