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High gasoline prices may dent Japan’s demand recovery after pandemic restrictions end

Japan’s domestic gasoline demand is expected to rise after the government lifted COVID-19-led movement restrictions in all 18 prefectures March 21, but surging retail prices are a worry and could dent some of that growth, market sources said March 23.
The country’s new COVID-19 cases slumped 81% from a peak on Feb. 5 to 20,231 March 22, according to Japanese public broadcaster NHK. This is the first time that Japan has not been under any pandemic-related curbs since early January.
“With the lifting of the priority measures, gasoline demand will recover gradually but as retail prices remain high, demand will not increase significantly,” a refiner source said.

Japan’s gasoline demand in March is expected to fall 7% year on year and remain 6% below the pre-pandemic level, the country’s largest refiner ENEOS Holdings Chairman Tsutomu Sugimori said March 22.

“After all, [consumers] would refrain from buying [gasoline] from rising prices, generally speaking,” Sugimori said.

Subsidy effect
The Japanese government began providing fuel subsidies, covering gasoline, kerosene, gasoil, and fuel oil, to refiners and oil product importers from end-January, as part of its efforts to alleviate the effect of rising oil prices on economic recovery from the pandemic.

Spot and retail gasoline prices have surged in the wake of the Russia-Ukraine war, dulling the effect of the subsidies.

“The current spot prices are still higher compared to last year, and this situation is expected to continue, though government’s subsidies have been provided,” a trader based in Tokyo said. “It will be difficult for gasoline demand in April to exceed the results for the same month of the previous year.”

Japan’s domestic spot average rack price for gasoline in Chiba soared to Yen 80,966/kl, or $106.3/b, in the month through March 22, up from an average of Yen 59,213/kl, or $77.8/b, in March 2021, data from S&P Global Commodity Insights showed.

The country’s national average retail price of regular gasoline increased for the 10th straight week to Yen 175.2/liter ($1.48/liter) March 14, reaching the highest level in 13 years after rising Yen 0.6/liter week on week, the Oil Information Center said March 16.
“It is true that subsidies have curbed retail price hikes. However, gasoline demand will continue to be curtailed, as consumers are less likely to feel the benefits of the subsidies,” a trader based in Osaka said.
Refiners use the government’s subsidies to curb increases in weekly wholesale prices of gasoline, kerosene, gasoil, and fuel oil, while trading houses deduct subsidies from the selling prices of imported oil products.
Source: Platts

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