Significance

Japan has imported less so far in the current fiscal year, down 21% year-on-year. Imports in the first half of the fiscal year dropped to 2.34 million b/d. This is the lowest since 1979.

Implications

Trade flows from Saudi Arabia to Japan have been stable since August, having been close to 1.2 million b/d. Imports of UAE barrels have been following an upward trend since August. Meanwhile, both imports and shipments to Kuwait seem to be increasing this month. Flows between the two countries have been underperforming earlier this year. Kuwait's exports of natural resources including oil and gas to Japan have dived by more than 42% since April.

Outlook

The fall in Japanese refinery runs continues with levels fallen to an average close to 63% in mid-October. Kerosene stocks still stand close to the highest levels ever recorded since December 2015, with most to be used for heating fuel as the winter approaches. Demand for jet fuel will most probably remain low as local airlines will reduce scheduled international flights by January 2021 compared to the previous year.

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Japan has been importing significantly less this current fiscal year, with most recent customs data suggesting imports between April and September 2020 have dropped 21% year-on-year. Imports in the first half of the fiscal year dropped to 2.34 million b/d. This is the lowest since 1979, when the data was first made available, according to officials of the country's Ministry of Finance. The COVID-19 pandemic has been shaping Japan's demand for fuel, as millions continue working from home and international movements are mostly avoided. Most recent data by IHS Markit Commodities at Sea suggests this month's imports are increasing since September, currently standing close to 2.5 million b/d. This could be the first month in this fiscal year with a year-on-year growth to report.

Crude oil imports to Japan by Country of origin, in (b/d)

Source: IHS Markit Commodities at Sea

Crude oil shipments to Japan by top five suppliers, in thousands (b/d)

Source: IHS Markit Commodities at Sea

Trade flows from Saudi Arabia to Japan have been stable since August, having been close to 1.2 million b/d. Imports of UAE barrels have been following an upward trend since August, which isn't expected to last for long, based on most recent shipments. Cargoes lifted from the Emirates and heading to Japan have halved so far in October, having remained below 315,000 b/d. Meanwhile, both imports and shipments to Kuwait seem to be increasing this month. This is rather interesting, especially as the trade between the two countries has been underperforming since earlier this year. This has resulted in Kuwait's trade surplus with Japan having plunged almost 55% from a year earlier, to just USD 218 million in September. Kuwait's exports of natural resources including oil and gas to Japan have dived by more than 42% in the same period.

Moving to Japanese refinery runs, the fall has continued with levels fallen to an average close to 63% in mid-October, according to Petroleum Association of Japan data. The country's kerosene stocks have only marginally declined, down by just 0.6% in the last week to 18.59 million barrels. However, stocks still stand close to the highest levels ever recorded since December 2015, when they were 18.61 million barrels. Kerosene production has increased to 181,000 b/d. The plan is probably to both produce and stock up more kerosene for heating fuel as the winter approaches. Demand for jet fuel will most probably remain low as Japan Airlines will reduce scheduled international flights from November to January by 78-82% compared to the previous year, while All Nippon Airways has suspended 86% of scheduled international flights in November.

Crude throughput currently stands close to 2.2 million b/d, with an operational capacity of 2.7 million b/d, according to the Petroleum Association of Japan. There are currently 42 tankers carrying 63.6 million barrels of crude oil to Japan, according to IHS Markit Commodities at Sea.

Tankers carrying crude oil to Japan

Source: IHS Markit Commodities at Sea

Meanwhile, imports of naphtha have been sharply affected as well. Japanese naphtha prices have been falling quickly, with the market having recently entered into a contango, with prompt prices at a discount to forward values.

Inventories of gasoline and gasoil have increased by 24% year-on-year to 11.7 million barrels and by 17.3% to 9.9 million barrels respectively. Total production of oil products fell to 2.1 million b/d in the last couple of weeks, with gasoil and gasoline output down to 525,000 b/d and by 2.8% to 729,000 b/d respectively. Exports remain at very low levels.

Japanese exports of refined products by commodity, in (b/d)

Source: IHS Markit Commodities at Sea

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Posted 22 October 2020 by Fotios Katsoulas, Associate Director, Lead Analyst Tanker Shipping & Alternative Fuels, S&P Global Commodity Insights