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Warm January sees Japan flooding Asia with kerosene exports

Bloomberg

The mildest winter in four years is prompting Japan to export its biggest volume of kerosene in a quarter century, squeezing profits for Asian refiners while cutting fuel expenses for airlines.

Japan has shipped enough of the transportation and heating fuel since December to fill a very large crude carrier, the most in at least 25 years, according to the Petroleum Association of Japan. January temperatures in Tokyo were the highest for the month since 2010, the Meteorological Agency said.

Asia’s regrade, a measure of the profit from producing kerosene or jet fuel instead of diesel, will widen to a discount of $1.50 a barrel from April to June, compared with 60 cents so far this month, said IHS Inc., an industry consultant.

Record winter kerosene exports are adding to signs that unpredictable weather patterns are changing trade flows in global energy markets. While Arctic storms bolstered fuel demand and helped refiners in the U.S. reduce stockpiles, an unseasonably warm winter in Japan is pushing their Asian counterparts such as JX Holdings Inc. in Tokyo and South Korea’s SK Innovation Co. to look further afield for buyers. In Europe, natural gas prices are poised to extend a bear market amid the mildest weather since 2008.

“These exports are an extraordinary incident for Japan, the traditional winter kerosene importer,” said Osamu Fujisawa, a Tokyo-based independent oil economist who has worked for Royal Dutch Shell and Saudi Arabian Oil Co. “Asia’s oil market generally expects Japan to import about 50,000 barrels a day during the winter period.”

Japan is exporting kerosene at a time when Prime Minister Shinzo Abe is seeking to drive an economic recovery with fiscal and monetary stimulus. Escalating fuel-import costs contributed to the nation’s record current account deficit in December as all 48 operable nuclear reactors remain shut for inspections after the 2011 Fukushima disaster started.

Kerosene, which can be used as jet fuel, is commonly burned in home heaters in Japan.

Japan exported about 1.9 million barrels, or 30,800 barrels a day, in the nine weeks through Feb. 15, said the Petroleum Association, which represents the nation’s refiners. Imports in November and December averaged 41,100 barrels a day, according to the most recent statistics from the trade ministry.

Domestic sales of kerosene declined 14 percent in December from a year earlier, the ministry data show. Sales slid 8 percent in January, PAJ Chairman Yasushi Kimura said Feb. 20.

Apart from the weather factor, “there’s been an energy shift among household users from traditional kerosene to electricity and gas for heating,” said Kimura, who is also the chairman of JX Holdings, Japan’s largest refiner. “As a result, monthly kerosene sales continued falling year on year. We’re facing persisting tough conditions.”

January temperatures in Tokyo ran at an average of 6.3 degrees, the highest for the month since 2010, according to the Meteorological Agency.

A series of snow storms in the U.S. boosted fuel demand, sending prices of crude, refined products and natural gas higher. This prompted refiners to import European gas oil and propane to cover low inventories, reversing typical trade movements, the International Energy Agency said in its monthly report Feb. 13.

In Europe, natural gas prices are set to decrease by more than 20 percent in the first quarter amid the mildest weather since 2008. Gas demand in the U.K., the region’s largest market, is at the lowest in 12 years.

Regrade swaps in Singapore, Asia’s biggest oil-trading center, dropped below zero on Jan. 16, according to data from PVM Oil Associates Ltd., a London-based broker. Kerosene was at 85 cents a barrel below gas oil on Feb. 20 and $1.72 less on Wednesday.

The discount will expand with the end of the peak winter heating season, according to Premasish Das, a director of Asian and Middle East oil markets at IHS in Singapore.

Unpredictable weather could shore up Asia’s kerosene market. Japan experienced two winter storms in February, with Tokyo covered in as much as 22 cm of snow on Feb. 8, the most in 20 years. Temperatures averaged 5.2 in the capital between Feb. 1 and Monday, the coldest since 1988.