Japan's direct-burning crude oil demand for power generation has picked up since late December as a cold spell across the country has increased appetite for loadings into March in the absence of nuclear output, industry and trading sources said Thursday.
"Indeed, oil demand picked up [for power generation] this month," an industry source said.
The source said Japanese incremental oil demand for power generation typically goes to fuel oil first, but it has fallen to crude in recent weeks amid further run cuts at Japanese refineries.
In late December, a cargo of prompt January-loading Minas -- which was heard to have gone into overhang from November to December -- and a cargo of February-loading Minas were placed, but details of the trades were not clear, according to trading sources. The cargoes were heard to be headed to Japan. The Asia Pacific sweet crude market typically trades two months ahead of the loading period.
Before the cold snap, Japan's demand for direct-burning crude was seen as largely tepid for January and February loading cargoes following strong interest seen for December-loading cargoes.
Trading sources said Japan's winter requirement for direct-burning crudes could have been met largely by these December-loading cargoes as well as monthly liftings of term barrels, with prompted buying seen in recent weeks deemed as "top-up" for the winter requirement.
"For winter demand, [the Japanese have] already bought it in November/December I believe," a North Asian sweet crude trader said.
Data released by Japan's Federation of Electric Power Companies last week showed that the country's 10 major power utilities used 993,123 kl (201,501 b/d) of crude and 1.30 million kl (264,577 b/d) of fuel oil in December, down 30.7% and 21.8%, respectively, from a year ago.
December marked the start of the country's winter power demand season, which normally lasts until March. The severity of the country's winter weather has a direct impact on crude, fuel oil, LPG, LNG and coal consumption for power generation.
Last year, Japan's oil demand for power generation plunged as Tokyo Electric Power Co., the country's biggest consumer of oil for power generation, cut consumption after getting additional coal-fired capacity from April.
But the year-on-year drop in Japan's direct-burning oil demand narrowed in December, compared with around 30% drops earlier last year, and buying interest in direct-burning crude continued to flow into the March-loading trading cycle.
Since the start of the month, Western trading house Glencore has been seen bidding for February-loading Minas cargo on the Platts Market on Close assessment process.
On the back of the strong buying interest, the premium of Indonesian Minas crude to March ICE Brent futures rose to a 19-week high of $4.63 cents/barrel Wednesday, when it was assessed at $111.81/b.
In addition, a Japanese trading house was heard to have bought 1 million barrels of Doba Blend from Chad arriving in March at Dated Brent minus $8/b FOB. Doba Blend has similar characteristics to Duri -- excluding the high TAN number -- and will be a direct competitor for the Indonesian grade rich in residue.
Trading sources said that buying interest for physical March cargoes could cover the requirement expected for the spring season.
Sources said the Japanese appetite for direct-burning crudes in March might go toward refilling depleting stocks in January-February amid lowered baseload power sources as a result of the ongoing complete nuclear outage.
"[Initially Japanese] utilities were quite optimistic for the startup of [the] nuclear plant in spring ... but it seems [the restarts] will be around autumn this year at earliest, so they are now trying to secure some barrels for spring," said a sweet crude trader.
Japan's winter crude and fuel requirement is expected to fall to about 410,000 b/d over January-March, down 25% year on year with crude and fuel oil demand expected to be about 190,000 b/d and 220,000 b/d, respectively, according to estimates compiled by Platts on December 6.
