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Japan's cold winter outlook more certain with La Nina, to boost kerosene demand

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Japan's cold winter outlook more certain with La Nina, to boost kerosene demand

Highlights

Japan to be hit by La Nina with 90% chance, says JMA

La Nina saw boost in kerosene sales, imports Dec 2017-Feb 2018 season

S Korean refiners see strong Japan kerosene import outlook

Tokyo — Japan's cold weather outlook looks more certain this winter when the country is forecast to be hit by the La Nina, which had last boosted kerosene sales as a result of experiencing lower than the 30-year-average temperatures across the nation.

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The latest cold winter outlook comes at a time local refiners are raising refinery runs to above 80% from the recent levels in the 60% range toward the heating demand season, which normally peaks over December-February.

"We expect the [kerosene] demand to increase because of the La Nina," an Osaka-based trader said on Nov. 11. "We are also hopeful for the staying home demand amid the increasing COVID-19 cases, which are increasing the need for tele-working and the probability of staying home."

Japan is projected to hit by the La Lina with a 90% probability toward the winter, according to the preliminary La Nina outlook released Nov. 10 by the Japan Meteorological Agency.

The country tends to experience the cold weather during the winter over December-February when it is hit by the La Nina, according to the JMA's historical analysis.

It shows that northern Japan tends to experience lower than 30-year average temperatures with a 38% probability, with eastern Japan's probability at 46%, western Japan at 46% and Okinawa/Amami at 46%.

Last La Nina

During the last La Nina, which had hit the winter of December 2017 to February 2018, northern Japan experienced 0.4 degrees Celsius below the 30-year average, with eastern Japan experiencing 0.7 C and western Japan recording 1.2 C below the average, according to the JMA.

Japan's kerosene sales boosted to 585,693 b/d in December 2017, 569,394 b/d in January 2018 and 606,493 b/d in February 2018, compared with 541,002 b/d in December 2016, 549,215 b/d in January 2017 and 561,971 b/d in February 2017, according to the Ministry of Economy, Trade and Industry.

The country's kerosene imports also rose to 99,472 b/d in December 2017, 90,093 b/d in January 2018 and 113,932 b/d in February 2018 from 86,987 b/d in December 2016, 87,381 b/d in January 2017 and 50,553 b/d in February 2017, according to data from the Ministry of Economy, Trade and Industry.

Strong imports outlook

The La Nina forecast is expected to boost kerosene procurement in Japan amid the colder-than-expected winter outlook, industry sources said.

"I think the La Nina forecast is news to everyone. Japanese buyers are more concerned about supply shortages these days, once they are trapped in a cold spell, procurement of kerosene will be much harder and more costly," a South Korean refining source said Nov. 11.

"So with news of the La Nina forecast, I can fairly much expect more kerosene imports from Japan, and I foresee that they will be more aggressive in securing kerosene barrels for this winter," the source added.

South Korea's kerosene exports to Japan stood at 666,000 barrels in the July-September quarter, but the shipments could spike to around 1.35 million barrels in the October-December quarter, according to fuel marketing sources at SK Innovation, S-Oil Corp., GS Caltex and Hyundai Oilbank surveyed by S&P Global Platts in the week of Nov. 8.

Meanwhile, the FOB Singapore jet fuel/kerosene prices have soared as a result of the colder-than-expected winter season.

At the 0830 GMT Asian close Nov. 10, the FOB Singapore jet fuel/kerosene cash differential was assessed at a discount of 22 cents/b to the Mean of Platts Singapore jet fuel/kerosene assessment, S&P Global Platts data showed. This marked a 30 cent/b, or 57.69%, jump since the beginning of November, Platts data showed.

The derivative market also saw similar gains, with the front month December-January timespread being assessed at minus 35 cents/b on Nov. 10, narrowing 14 cents/b month to date, Platts data showed.