Japan refiners face ‘larger-than-expected’ OPEC supply cuts for June: PAJ chief

  • May 23, 2020
  • Investing

Japanese refiners have received “larger-than-expected cuts” to their June-loading term crude supply from OPEC producers, keeping them balanced against plummeting domestic demand due to the coronavirus pandemic, the newly appointed president of the Petroleum Association of Japan said Friday.

The refiners, however, are mulling the possibility of seeking spot barrels when there is a supply shortage from the domestic demand recovery in the coming months, Tsutomu Sugimori told a press conference via webcast, following his appointment earlier in the day.

“We cannot disclose the extent of the supply cuts of which we have been notified,” said Sugimori, who is president of JXTG Holdings, the parent of the largest Japanese refiner JXTG Nippon Oil & Energy. “It was larger than expected either way.”

Sugimori, speaking in his capacity as JXTG Holdings president, said Wednesday that JXTG had a good balance of product supply and demand due to refinery run cuts and maintenance, coupled with reduced crude supply from its major term suppliers such as Saudi Arabia.

Saudi Aramco has informed at least one Japanese refiner that it will reduce its June-loading crude allocations by 20%-40%, with the cuts being made across all grades and larger cuts to heavier grades.

OPEC’s core Gulf members Saudi Arabia, the UAE and Kuwait have announced voluntary additional crude oil production cuts in June, with Saudi Arabia’s energy ministry directing state oil company Aramco to pump 1 million b/d below its OPEC+ quota of 8.492 million b/d next month.

The UAE will cut an extra 100,000 b/d in June, with its quota under the OPEC+ agreement for May and June 2.446 million b/d, before rising to 2.590 million b/d for the rest of the year. Kuwait will also cut 80,000 b/d in June beyond its quota of 2.17 million b/d.

“Given domestic demand has shrunk significantly, we are confident we can operate normally for now on the basis of the current OPEC supply cut,” Sugimori said Friday.

“However, there is the possibility of a shortage should domestic demand recover,” he said. “In which case, we would balance it out by procuring spot cargoes from around the world.”

Emergency measures being eased

Japan on Thursday further lifted the state of emergency measures imposed to curb the spread of the coronavirus in Kyoto, Osaka and Hyogo in the west, leaving only Tokyo, Chiba, Saitama, Kanagawa in the east and Hokkaido in the north, with a planned follow-up review on May 25 potentially to lift the measures before their expiry on May 31.

“We expect demand will gradually recover as people gradually move around more, following the move to lift the declaration [of the state of emergency],” Sugimori said. “Whether [demand] will recover to 100% of what it was before will depend on the extent to which changes to lifestyles and working patterns during the state of emergency remain in place in the post-coronavirus era.”

JXTG currently estimates Japanese gasoline demand will drop 27% year on year in May, with gasoil demand falling 11%, reducing demand for gasoline, kerosene, gasoil and A-fuel, a blend of gasoil and fuel oil at a 90:10 ratio, by 19% on the year, Sugimori said Friday.

Specifically over the Golden Week national holidays around early May, Japanese gasoline demand plunged 34% year on year because of the nationwide state of emergency, although gasoil demand increased slightly from a year earlier because of greater demand for home delivery despite less demand for holiday travel, he added.

Cosmo Energy Holdings said Thursday it sees Japanese gasoline and gasoil demand bottoming out by October-December and recovering to pre-coronavirus levels by January-March 2021, but expects jet fuel demand to drop 20-30% year on year in the first quarter of next year.

Based on its fiscal 2020-21 (April-March) outlook, Japanese gasoline demand will drop 16% year on year and jet fuel demand 44% during the fiscal year, the parent of the country’s third largest refiner Cosmo Oil said.

Source: Platts