March 19, 2020 / 11:35 AM / in 19 days

Japanese refiners may need to cut run rates amid falling fuel demand

TOKYO (Reuters) - Japanese refiners may need to cut run rates to meet falling fuel demand because of the spreading coronavirus outbreak, the head of the Petroleum Association of Japan (PAJ) said on Thursday.

FILE PHOTO: A worker riding a bicycle passes the Fuji Oil Co.'s Sodegaura Refinery in Sodegaura, Japan February 8, 2017. REUTERS/Issei Kato/File Photo

Worldwide refineries are slowing output and contemplating extensive maintenance because of travel restrictions put in place in response to the coronavirus pandemic.

“Jet fuel demand has been hit by reduced flights including those between Japan and the United States, as well as Japan and Europe,” Takashi Tsukioka, president of the PAJ and chairman of refiner Idemitsu Kosan (5019.T), told a news conference.

Idemitsu expects its jet fuel demand for international flights will fall about 40% year-on-year from April, while for domestic flights it will likely shrink by about a fifth, he said.

“Diesel demand did not fall as much as expected last month because of increased truck traffic and as demand for home delivery services has risen as people stay home,” he said, adding that gasoline demand is also declining.

“The slumping jet fuel demand alone would not force refiners to slow operations, but weakness in overall fuel demand may lead to an adjustment in run rates,” Tsukioka said, when asked if Japanese refiners will cut output.

Saudi Arabia is flooding markets with oil at prices as low as $25 per barrel, specifically targeting big refiners of Russian oil in Europe and Asia, in an escalation of its fight with Moscow for market share, trading sources said.

Abu Dhabi National Oil Company (ADNOC) also offered steep discounts for its Murban crude for April.

Japanese refiners have already secured supplies for April under their long-term contracts and there is little room to buy extra crude from the Middle East even at large discounts, Tsukioka said.

Allocations for May will depend on local demand, he added.

He also said Japanese refiners are not expected to buy cheaper oil to stockpile as tanker freight rates have risen sharply.

Crude oil prices have plunged this year, most recently after Saudi Arabia and Russia failed to reach agreement on limiting supplies. Both U.S. crude CLc1 and international benchmark Brent LCOc1 have tumbled below $30 a barrel.

Tsukioka said he could not see a bottom in crude prices yet, and that oil markets will likely to remain volatile for a while.

Reporting by Yuka Obayashi; Editing by Jan Harvey

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