Tokyo — Japan's crude oil imports will likely remain at their current tepid pace until the end of 2020, having slowed to a multidecade monthly low in July following the spread of the coronavirus pandemic and ensuing domestic demand decline, Petroleum Association of Japan President Tsutomu Sugimori said Sept. 17.
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"I believe it will likely remain at the current level [until the end of the year]," Sugimori said at a press conference in Tokyo, when asked to comment about Japan's crude import outlook beyond October. Japan's crude imports had fallen to the lowest level in more than half a century over June-July.
In the face of falling domestic oil products demand, Japanese refiners will not take incremental contractual crude supply volumes and will reduce spot procurements in the coming months, he said.
"Although [domestic] demand has been declining in the wake of the coronavirus pandemic, we have been taking contractual [crude] volumes," Sugimori said.
"This has increased crude stocks sharply, which has resulted in a significant reduction [in imports] over July-September to reduce the stocks."
Japan's crude oil imports during peak summer demand season in July, 2.09 million b/d, tumbled to their lowest monthly total in more than five decades, since 1967, according to Ministry of Economy, Trade and Industry data, a stern reminder to major crude producers that Asia's third-biggest petroleum consumer may struggle to register any meaningful oil demand recovery during the pandemic.
NO DEMAND RECOVERY AMID PANDEMIC
As for Japan's immediate demand outlook for key oil products, Sugimori said gasoline demand is expected to fall 7% year on year in September, while gasoil demand is seen sliding 6% on year as a result of the impact from the two major typhoons the country experienced this month.
"Depending on the spread of the coronavirus pandemic as well as resolving the situation from now on, we expect the current level of [petroleum] demand will continue if the current situation remains," he said. "Looking throughout the second half of the current fiscal year, we do not expect demand to recover until the end of the fiscal year [March 31, 2021]."
Sugimori, however, said Japan's refinery runs will "likely recover from current levels during winter" because refiners would increase the production of kerosene for heating demand.
Japan's refinery runs have declined sharply in recent months because of plummeting jet fuel demand amid border restrictions in light of the pandemic. Average refinery run rates have retreated in recent weeks to the 60% range, having briefly risen above 70% in mid-August during the peak summer holiday season, according to PAJ data.
BOOSTING PRODUCT IMPORTS
The low refinery runs have led Japan to boost imports of key refined products in recent months, with the country becoming a net importer of gasoline for the fourth consecutive month as of July.
"While overseas markets are extremely cheap, there is an incentive for imports as the overseas [market] is cheaper than the domestic [market]," Sugimori said.
The spread between Japan's domestic gasoline rack price in Hanshin, west of Japan, and Japan's import parity for gasoline from South Korea averaged Yen 6,300/kiloliter as of Sept. 16, up Yen 2,200/kiloliter ($9.56/b), or 53.7%, from the July average, according to Platts data.
The import parity price is calculated as a premium to Mean of Platts Singapore 92 RON gasoline assessments plus freight costs for a small range ship on the South Korea-Hanshin-Japan route, insurance and taxes.
In July, Japan imported an average of 90,534 b/d of gasoline, up 73.4% from a year earlier and 18.3% from June, while it exported 13,892 b/d of gasoline in the same month, according to METI data.