【Crude Oil】

　　While this winter's crude oil supply will largely depend on the situation in the Middle East--including the reopening of the Strait of Hormuz--there are indications that supply may increase. In addition to the seven volunteer countries participating in OPEC+, non-OPEC+ members such as Canada and Brazil, as well as the United Arab Emirates (UAE), which has withdrawn from OPEC+, have clearly signaled their intention to increase production, leading to a significant expansion in global supply capacity. Furthermore, countries such as Iraq and Kuwait, which have supply hubs in the Persian Gulf, resumed sales when the Strait of Hormuz was temporarily reopened in June. According to the US Energy Information Administration's (EIA) Short-Term Energy Outlook released in July, global crude oil supply is expected to shift to a surplus--exceeding consumption by just over 5 million barrels per day--from the second half of 2026 through 2027. As of Aug 5, attention is focused on the talks between Iran and Oman regarding the Strait of Hormuz. However, just prior to that, the US and Iran resumed hostilities, and the pro-Iranian Houthi group in Yemen declared a naval blockade against Saudi Arabian vessels. As a result, concerns are mounting over the supply of crude oil from Saudi Arabia's Yanbu Port, and if this situation persists, it is highly likely to further disrupt the supply of Middle Eastern crude oil. Furthermore, developments in the war in Ukraine remain a source of concern, and the outlook remains highly uncertain due to geopolitical risks.

【Asia Products】

Regarding kerosene supply, Japanese oil companies have reported that conditions are "normal for this time of year." The situation in the Middle East continues to change by the minute, and the environment remains unpredictable. However, many observers note that since Japan has secured a certain volume of light crude oil from the US and other sources as an alternative to Middle Eastern crude oil, the impact of the deteriorating situation in the Middle East is not expected to be particularly severe. Japanese wholesalers are proceeding smoothly with stockpiling for the winter season both domestically and in South Korea.

　In contrast, the situation for trading companies is dire. High import margins are preventing them from importing, and there is no prospect of building up inventories, particularly for northern Japan. The crack spreads for jet fuel and kerosene for the July contract on the Singapore futures market are extremely high, exceeding $70 per barrel. Against the backdrop of global supply concerns, the crack spreads are likely to remain elevated for some time.

　The import costs for SR-sized kerosene cargoes loaded from South Korea--which trading companies primarily import--exceeded 155,000 yen per kiloliter on a delivered basis (as of July), significantly surpassing domestic market prices even when subsidies are factored in. Some trading companies have expressed concern that they are unable to build up inventory, stating, "At this rate, we won't be able to move into the winter sales season." Furthermore, in South Korea, companies such as S-Oil and Hyundai Oilbank import large volumes of crude oil from the Middle East. If the turmoil in the Middle East persists, difficulties in securing crude oil could lead to reduced refinery utilization rates and a decline in sales to Japanese trading companies.

　Supply concerns for low-sulfur heavy fuel oil used for power generation are expected to persist. Geopolitical risks in the Middle East are forecast to continue for the time being, making it difficult to alleviate the sense of tight supply to Asia. However, since coal and liquefied natural gas (LNG) markets remain cheaper than heavy fuel oil, demand for low-sulfur heavy fuel oil is likely to be limited.

【Japan Products】

　This winter, concerns about securing a stable supply in the kerosene market are likely to be stronger than in previous years. Since tensions in the Middle East escalated in March, domestic kerosene imports have plummeted amid persistently high prices in overseas markets. Domestic kerosene supply relies heavily on imported volumes, particularly in cold regions. "If this environment that makes imports difficult continues, this winter's supply-demand balance will tighten more than anyone imagines," said a market source. According to Ministry of Finance trade statistics, domestic kerosene imports from January through May totaled 755,929 kiloliters, down 48% year-on-year.

　Major oil distributors have secured crude oil supplies through September and plan to diversify their procurement sources starting in October. However, with no end in sight to the conflict between the US and Iran, there are no signs that the crude oil market environment will improve.

　In Hokkaido, major oil distributors and trading companies have begun stockpiling in preparation for this winter. However, due to the sharp decline in import volumes, stockpiling by trading companies in particular appears to be lagging behind initial projections at this time. It has been reported that not only major oil distributors and trading companies but also market participants within Hokkaido are already stockpiling--a practice they would not normally undertake--due to concerns over persistently high prices and low inventory levels.

　However, market participants in Western Japan, where demand is relatively low, are taking a more cautious stance. In reality, they are adopting a wait-and-see approach regarding stockpiling at this time of year.

　The domestic kerosene market is heavily influenced by the government's fuel oil subsidy policy, and speculation is emerging that subsidy amounts may be reduced as the year-end approaches. However, as of late July, no concrete decisions have been made, and there is a strong view that it would be premature to stockpile based on the assumption that kerosene prices will rise due to a reduction in subsidies.