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Heavy rain storms slash Japan’s Aug. gasoline demand by 10% on year: sources

Typhoons and heavy rain storms have slashed Japan’s gasoline demand by 10% year on year so far during the peak driving season in August, local market sources told S&P Global Platts Aug. 17, with a bearish outlook for another month as the country is set to expand and extend COVID-19 emergency measures.

The country’s gasoline demand was hit by heavy rain storms in mid-August during the country’s peak summer holiday season, when it was also hit by an increasing number of COVID-19 cases, the traders said.

“A long spell of rainy weather has stalled people’s movement,” said a source with a Japanese refiner. “August gasoline sales so far might have been dropped by 10% year on year, and the demand could be pressured further downwards, depending on the impact from the state of emergency measures.”

The estimated August gasoline demand so far marks a drop from 890,580 b/d of gasoline sales in August 2020, when it was the lowest for the month since 1989, according to the Ministry of Economy, Trade and Industry data.

The bearish demand in mid-August sent the domestic spot gasoline rack price in Chiba, Tokyo Bay to Yen 66,000/kl ($95.95/b) Aug. 17, down Yen 400/kl week on week, Platts data showed.

Emergency measures

In the face of a sharp rise COVID-19 cases, Japan decided Aug. 17 to expand its state of emergency measures to Ibaraki, Tochigi, Gunma, Shizuoka, Kyoto, Hyogo and Fukuoka starting Aug. 20 in addition to the current measures for Tokyo, Saitama, Chiba, Kanagawa, Osaka and Okinawa which were extended to Sept. 12.

The country also decided to add Miyagi, Yamanashi, Toyama, Gifu, Mie, Okayama, Hiroshima, Kagawa, Ehime and Kagoshima to its less stringent priority measures for Hokkaido, Fukushima, Ishikawa, Aichi, Shiga and Kumamoto through Sept. 12.

Following the latest development, roughly 56% of Japan’s population will be under the state of emergency measures, with the priority measures covering 28% of the population.

The domestic gasoline supply and demand balance was exacerbated further as all of Japan’s refining capacity of 3.458 million b/d returned to operation on Aug. 14, following the restart of ENEOS’ fire-hit sole 136,000 b/d crude distillation unit at its Oita refinery in the southwest.

“Without a change in gasoline imports, the domestic supply and demand balance will be loosened as supply will be increased from restarting CDUs,” said a Tokyo-based trader. “The demand is severely hit [from rain storms] in the western Japan, where roads were damaged.”

With Japanese gasoline demand dropping in August, Japan has begun to raise gasoline exports in an attempt to offset domestic inventory build-ups.

“Japanese refiners are mostly back up and running. With the Olympics done and restrictions still around, domestic refiners have to look elsewhere to prevent inventories from building up too quickly,” one Singapore-based source said.

Reflecting the shift to export cargoes, at least 95,000 mt of gasoline was spotted being placed on subjects in the first half of August for export out of Japanese ports, up slightly from the 70,000 mt exported in July, according to Platts cFlow trade-flow analytics software.

“The regional Asian gasoline market is very strong right now. So this could also give traders incentives to send cargoes out,” the source also noted.

The FOB Singapore 92 RON gasoline crack against front month ICE Brent crude futures has averaged $9.15/b month-to-date as of Aug. 17, up from the $8.58/b average in July, Platts data showed.

Shifted flows

Another impact of the decline in Japanese gasoline demand in August has been the shift of trading flows for South Korea gasoline cargoes.

“South Korea remains a preferable place to obtain gasoline cargoes due to the cheaper freight cost. But now with the lack of Japanese demand, the volumes have to head somewhere else,” a second source said.

In July, at least three medium range tankers were placed on subjects to carry gasoline from South Korea to Japan, according to Platts cFlow.

But in line with the dip in domestic demand and restart of a number of refineries, no gasoline cargoes have been placed on subjects for a similar route as of Aug. 17.

Instead, a total of at least 380,000 mt of South Korean gasoline cargoes have been placed on subjects to move gasoline to Singapore, New Zealand and even, in a rare move, to South America, according to Platts cFlow.
Source: Platts

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