Ahead of the high-demand winter season, reporters of Rim Intelligence discuss the outlook of energy trend in winter 2025 as of mid-August.

<Crude Oil>
In winter 2025, production by OPEC Plus and the US would have a great impact on crude oil supply. OPEC Plus is gradually lifting production cuts from April to September 2025 in order to raise production by a total of 2.47 mil barrels per day(b/d). The production cuts of 2.20 million b/d carried out by eight members voluntarily would completely finish. Production volumes have been increasing more than planned since May. OPEC Plus intends to flexibly adjust production volumes depending on supply/demand going forward. Meanwhile, the number of operating rigs and the extraction efficiency are declining in the US. Momentum for production is weakening.

The US Energy Information Administration (EIA) forecasts that crude oil production would peak in the second quarter of 2025 and moderately be decreasing to about 100,000 barrels per day by the end of 2026. Because of this, supply might decrease on an annual basis in the US. The US has a high level of the Strategic Petroleum Reserve (SPR) but it cannot be quickly used to adjust supply and demand in winter due to its political and practical restrictions. Moreover, as the Middle East situation remains unstable on the back of a conflict between Israel and Iran, the geopolitical risks cannot be ignored as a factor of fluctuating prices. Under such circumstances, crude oil supply is seemingly stable in winter 2025, but involves uncertainty and risk factors.

<Japan Product>
Securing transportation is key in winter
In the Japan domestic oil market, securing transportation would be important on the back of so-called "The 2024 transportation problem", following the previous year. While transportation of fuels increases along with growing demand for kerosene in winter, transportation capacity by tank lorry tends to be lacking due to a shortage in drivers. In fact, the cold regions suffered a shortage in transportation last winter. Oil wholesalers have already started moving to secure tank lorries via term contracts. If players can successfully secure transportation capacity, "This would show great stability of the company," said an oil dealer based in Hokkaido.

However, signing term contracts is occasionally difficult. Wholesalers want to enter into term contracts only for winter. On the other hand, oil transportation companies want to prevent signing contracts that are advantageous only to wholesalers, and often request to conclude yearly term contracts. But if wholesalers increase yearly term contracts, they would have surplus tank lorries in summer when kerosene demand is sluggish. Therefore, not a few wholesalers find it necessary to sign term contracts but are adopting a wait-and-see stance at the moment. Further, transportation companies have difficulties securing drivers. Even if wholesalers would like to conclude term contracts, transportation companies cannot immediately decide to do so and discussions show no progress.

Provisional tax and subsidy affect market
Discussions to abolish the provisional tax on gasoline and gasoil would affect the fuel market this winter. At the national election for the House of Councilors on Jul 20, the Liberal Democratic Party (LDP) was devastatingly defeated. Thus, the abolishment of the tax is becoming realistic.

Specific movements surfaced in August. On Aug 1, Diet members of seven opposition parties submitted a bill of abolition of gasoline provisional tax to the House of representatives. This bill is subject only to the gasoline provisional tax and local tax on gasoil is excluded. Supervisory authorities, the Agency for Natural Resources and Energy and the Ministry of Internal Affairs and Communications, mentioned that the abolition of the provisional tax would be subject only to gasoline and gasoil would be excluded. This recognition by the authorities would surely affect sales plans and inventory management going forward as some market players expected that taxes on both gasoline and gasoil might be abolished.

At present, whether and when the tax would be abolished is uncertain. Also, it is not decided how taxes on gasoil, kerosene and fuel oil would be handled. There are many problems. For gasoil, the provisional tax would not be abolished. The provisional taxes are not imposed on kerosene and fuel oil. The submitted bill says that the provisional tax on gasoline would be abolished on Nov 1. Meanwhile, the demand season for kerosene begins in Hokkaido and Tohoku in November and players would become sensitive to prices for kerosene. Whether kerosene prices are consistent with gasoline prices and whether existing subsidy would continue would be major factors to see market situation. Depending on factors including the abolishment of the provisional taxes, the subsidy, the high demand winter season and the government policy, consumers would likely be hesitant to buy fuels and demand would surge after that. If crude oil prices greatly fluctuate in the international market around the same time, the market could unexpectedly move.