Tokyo — Japan's crude oil imports are expected to rise to a seven-month high in November as local refiners have boosted their crude procurement from the Middle East in preparation for the country's winter heating demand.
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The increased crude imports came after Japan's crude inflow fell to its lowest in more than half a century in recent months because of dampened demand for petroleum products caused by the coronavirus pandemic.
However, Japan's crude imports are set to rebound in November as a number of local refiners are raising their refinery run rates to meet domestic kerosene demand for heating as the outlook for the approaching winter is colder-than-average.
"We are making our [crude] procurement in anticipation of seeing more demand than in the summer as we are adjusting crude processing for winter demand," a source with a Japanese refiner said.
Similarly, a source with another Japanese refiner said the company is buying more crude oil than in recent months for the winter demand season.
Japan's crude throughput is expected to increase during winter. S&P Global Platts Analytics forecasts Japanese refiners to process 2.5 million b/d of crude oil on average in November, 2.65 million b/d in December and 2.8 million b/d in January 2021.
The bulk of Japan's incremental crude demand is from the Middle East, where it sources roughly 90% of its requirements. This has been mostly fulfilled for meeting the country's peak heating demand over December-February, traders and sources with Japanese refiners said, adding that any uptick in prompt demand can be sourced from Russia's Far East.
The country's November crude imports are estimated at 77.76 million barrels as of 0500 GMT Nov. 19, the highest since its import of 82.76 million barrels of crude in April, according to data intelligence firm Kpler. The Middle East accounts for 72.64 million barrels, or 93%, of total imports in the month, according to Kpler.
Japan has also increased its crude import from Russia's Far East, totaling 2.8 million barrels in November, up 25.6% from October, Kpler's data showed.
The latest Ministry of Economy, Trade and Industry data showed that Japan's crude imports retreated in September to its lowest volume of 2.14 million b/d in 53 years after having risen during the country's summer holidays in August.
While around 70% of Japanese refiners' requirements are covered by term contractual barrels, expectations of an uptick in winter demand had spurred the purchase of spot November-loading Middle East crude barrels, traders said.
"Come to November [loading trade cycle] there were expectations of an increase in demand for winter. As inventories were low, that's why we saw a lot of buying for November [barrels]," a crude oil trader with a Japanese refiner said.
Japan's spot demand for December-loading Middle East barrels had eased, while the demand sentiment for the current January-loading trade cycle was mixed.
Some market participants expect Japan's January spot demand to increase from December-loading barrels, while others see demand either stable or lower.
Some Japanese refiners have received incremental term volumes from Saudi Aramco, market sources said.
"With the incremental term volume received, this would have covered requirement that would typically be purchased on the spot market," a trader said.
Saudi Aramco declined to comment when asked about Japan's incremental crude intake for November and December loading.
Japan's crude run rates in the week ended Nov. 14 shot up to 71.7%, the highest in 13 weeks since its mid-August peak during the summer driving season, as refiners raised their crude throughput for the upcoming winter heating demand season.
The Nov. 8-14 run rate was the highest since the week ended Aug. 15 when runs stood at 71.8%, according to the latest Petroleum Association of Japan data.
Japan's kerosene stocks fell 5% week on week to 17.39 million barrels on Nov. 14, the PAJ said on Nov. 18, because of the accelerated inflow of the heating oil.
Meanwhile, its estimated shipment of kerosene to the domestic market surged 59.6% week on week to 2.48 million barrels in the week to Nov. 14, according to S&P Global Platts calculations based on the PAJ data.
Estimated shipments of domestic kerosene had jumped 66.5% in four weeks to 6.51 million barrels on Nov. 14, up from 3.91 million barrels in the previous four weeks to Oct. 17, Platts calculations showed.