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New Japanese firm JX Nippon Oil & Energy Corporation is expected to cut bunker supplies to the local market, according to market sources.

The newly-merged company - created through the merger of Japan Energy and Nippon Oil - is due to begin operating in July following the launch of its holding company JX Holdings, Inc..

JX Nippon Oil & Energy Corporation will be responsible for oil refining and sales, which will include the marketing of marine fuel to the Japanese bunker market. Up until then, Nippon Oil and Japan Energy will continue to sell bunker fuel as separate entities.

According to trading sources, the combined monthly supply volume of 200,000 tonnes is expected to be reduced once the newly-merged company begins operating in July. However, it is currently unclear how much volume will actually be cut and how pricing strategies will be impacted.

Japan Energy currently sells around 60,000 tonnes per month from its 205,200 barrels-per-day (bpd) Mizushima refinery and 210,000 bpd Kashima refinery. Nippon Oil supplies approximately 140,000 tonnes per month, sourcing product from its 340,000 bpd Negishi Yokahama Refinery and its 24,000 bpd Oita refinery.

Both companies are estimated to have a combined market share of approximately 50 percent of Japan's total bunker sales volumes.

The production capacity of Japan Energy and Nippon Oil is expected to be reduced by 400,000 bpd to 1.430 million bpd by March 2011, down from 1.830 million bpd in October 2009. JX Holdings has already said that it aims to reduce total capacity to around 1 million bpd by 2020 and cut 600,000 bpd of its refining capacity by the the end of March 2014.

Japan's oil product sales have been stuck around two-decade lows, hit by the country's decreasing population and a shift towards greener energy.

Last month, Nippon Oil scrapped its 24,000 b/d No. 1 crude distillation unit (CDU) at the Oita refinery and reduced capacity at the Kashima refinery by 21,000 bpd to 189,000 bpd.

JX will also this month close the 110,000 bpd No.2 CDU at the Mizushima plant, which has been mothballed since last July, and close its 70,000 bpd No.2 CDU at the Negishi refinery in October.

The cuts in refining capacity have, thus far, not had a significant impact on bunker supply volumes with run rates already at around 70-80 percent before the reductions were implemented. In addition, Japan typically imports cargoes of 20,000-30,000 tonnes per month in order to meet local demand.