By Dave Brown - Exclusive to
Oil
Investing News
With about 25 percent of Japan's electricity attributable to
nuclear sources, the impending power shortages due to closures of
nuclear reactors after the quake have analysts suggesting Japan
will likely need to increase its imports of petroleum products
and other energy sources in order to meet its requirements. The
existing power generation infrastructure relies mostly on
coal
and
natural
gas
, which implies an increase of demand on these products in
addition to diesel imports over the short term to secure domestic
energy requirements. Natural gas futures rose the most in 10
weeks on speculation that earthquake damage to nuclear reactors
in
Japan
may divert liquefied natural (
LNG
) gas resources away from the US.
Barclays Plc
issued a research note today from analyst Kerri Maddock
suggesting that the "prolonged risk of nuclear outages could
divert spot LNG cargoes to Japan and incrementally tighten LNG
supply."
While it is too early to know if the massive reconstruction
spending will bring Japan out of a deflationary period, there
will be most certainly be a realized drop in gross domestic
product (
GDP
) during the next few months as damage is evaluated.
Falling crude oil prices on speculation
Spot market oil prices fell to a two-week low in New York on
speculation that the worst earthquake in Japan's history will
hurt growth and reduce fuel demand in the world's third largest
economy. The Asian nation is also the world's third largest
crude importer and used an average 430,000 barrels a day of fuel
oil in December 2010, according to
International Energy Agency
(IEA) estimates.
Prices have dropped 6.1 percent in five days of losses, the
longest losing streak in more than a month. At a magnitude 8.9,
the fifth highest earthquake registered in the past 111 years has
shut 29 percent of domestic refining capacity, according to
Bloomberg and data sourced from the Petroleum Association of
Japan
.
On the New York Mercantile Exchange (NYMEX) futures oil
contracts for April delivery fell as much as 2.7 percent to
$98.47 a barrel, the lowest price since the beginning of this
month. Dated Brent futures oil contracts for April settlement on
the London ICE Futures Europe exchange dropped as much as 2.4
percent, to $111.16 a barrel, the lowest price since February
25.
Clouded future
Events in the Middle East and Northern Africa (
MENA
) are both powerful and unpredictable catalysts in oil price
volatility over the short term. The deteriorating fiscal position
of MENA economies represents one of the most significant economic
impacts of the dynamic unrest which has spread in the region.
Slower economic growth in countries like Egypt, Tunisia and Libya
will certainly constrain fiscal revenues, even as expenditure
demand skyrockets. These potential deficits will be measured with
offsetting marginal revenue if oil prices appreciate and
productivity can be stabilized.
The current consensus among many analysts is that opposition
in Saudi Arabia is not likely to be as potent as it was in Egypt
and Libya. Although Saudi Arabia shares some demographic and
employment pressures, the larger capital reserves of the King
facilitate political stability via the redeployment of assets to
reconcile competing interests. Additionally, the country has no
history of strongly organized social movements, with a cautionary
note for investors that this is also true for much of the
region.
Global dynamic
In an economic commentary, a research team headed by Nouriel
Roubini, professor of economics at New York University's Stern
School of Business,
Russia
is suggested as one potential region to watch for investors that
could benefit from high oil prices, with more broadly based
growth this year. Upcoming elections and oil prices will
facilitate further fiscal expansion, adding to inflationary
pressures but also supporting consumption and public
investment. The group contends, "As rising food prices and
past fiscal expansion pass through to core and nonfood prices and
dampen consumption, the central bank (
CBR
) will tighten monetary policy through interest rate hikes and a
stronger currency." Credit growth will support fixed investment,
but consumption remains the primary driver.
Oil Industry Impact from Earthquake in Japan
originally posted on
oilinvestingnews.com