Best of the Week
Most Popular
1.U.S. Housing Bull Market Over? House Prices Trend Forecast Current State - Nadeem_Walayat
2.The Coming U.S. Economic Collapse Will Trigger a Revolution - Harry_Dent
3. Stock Market Crash a Historical Pattern? - Wim_Grommen
4.Global Panic - U.S. Federal Government Stockpiling Ammo – Here’s What We’re Going to Do - Shah Gilani
5.AI, Robotics, and the Future of Jobs - Aaron Smith
6.This is Your Economic Recovery With and Without Drugs - James_Quinn
7.Gold and Silver Price Getting Set To Explode Higher - Austin_Galt
8.The Something for Nothing Society - Lifecycle of Bureaucracy - Ty_Andros
9.Another Interesting Stock Market Juncture - Tony_Caldaro
10.Inflation vs the Deflationary Straw Man - Gary_Tanashian
Last 5 days
The ISIS Menace - Just What We Need, Another War - 27th Aug 14
The Risky Business of Methane-Rich “Fire Ice” - 27th Aug 14
CFR Recommends Policy Shift that is Very Bullish for Gold - 27th Aug 14
Ukraine Standoff Signals Global Power Shift - 27th Aug 14
Stock Market Panic Decline Begins - 27th Aug 14
The Monopoly of the Government Education Cartel - 27th Aug 14
How to Invest in Silver Today for Double-Digit Gains - 27th Aug 14
The Big Solar Energy Breakthrough We've Been Waiting For - 27th Aug 14
U.S. Empire’s Bumpy Ride - 27th Aug 14
Gold Market and the Interest Rate Trap - 27th Aug 14
Stock Market Staring Into the Great Abyss - 27th Aug 14
A Look at the Coming 30-year Inflation Cycle - 27th Aug 14
Forex Trading - Will USD/CHF Rally Above 0.9200? - 27th Aug 14
Europe’s Depressing Economy Dog Days of Summer - 27th Aug 14
How The Coming Silver Price Bubble Will Develop - 26th Aug 14
A Nation of Shopkeepers - Supply-Side (Voodoo) Economics? - 26th Aug 14
Stock Market Bear Tracks Abound In Wall Street - 26th Aug 14
65,000 U.S. Marines Hold up a Mirror to the Economy - 26th Aug 14
Bitcoin Market Provides Clues for Investors - 26th Aug 14
The Key to Trading Success - 26th Aug 14
Will The US Succeed in Breaking Russia to Maintain Dollar Hegemony?... - 26th Aug 14
Even Mainstream Academia Worried about Massive Bubbles in Markets - 26th Aug 14
Iraq and Syria Follow Lebanon's Precedent - 26th Aug 14
Colonization by Bankruptcy: The High-stakes Chess Match for Argentina - 26th Aug 14
Dow Stock Index On The Cusp - 26th Aug 14
Prohibition Laws and Agency Regulations - 26th Aug 14
Will Canadian Regulators be Able to Avoid Final Fatal TSX Venture Exchange (TSX-V) Crash? - 25th Aug 14
HUI Gold Mining Stocks Elliott Wave Projection - 25th Aug 14
Stock Market Uncertainty Resolved With New High - 25th Aug 14
Go Forth Multiply And Replenish The Earth - 25th Aug 14
Dollar Dumping: When Actions Speak Loudest - 25th Aug 14
A Plethora of Currency, Stocks and Precious Metals Chartology - 25th Aug 14
Why Isn’t Fed Monetary Pumping Helping the U.S. Economy? - 25th Aug 14
Myths About Money and Inflation - 25th Aug 14
The Fed Will Raise U.S. Interest Rates in March 2015 - 25th Aug 14
Gold Price Manipulation Still Alive - 25th Aug 14
The Ebola Outbreak: U.S. Sponsored Bioterror? - 24th Aug 14
Instigating War in Europe - Understanding Ukraine in 15 Minutes - 24th Aug 14
LNG Catalysts About to Hand You the investment Opportunity of the Decade - 24th Aug 14
Another Interesting Stock Market Juncture - 24th Aug 14
The West Set Up the ISIS Endgame - 24th Aug 14
Gold And Silver Low Prices Are NOT The Reason To Own Precious Metals - 24th Aug 14
U.S. Housing Bull Market Over? House Prices Trend Forecast Current State - 23rd Aug 14
Inflation vs the Deflationary Straw Man - 23rd Aug 14
U.S. Interest Rate Rise to Occur Mid-2015 According to Fed's Williams - 23rd Aug 14
Bitcoin Price Continuation of a Move up - 23rd Aug 14
Gold and Crude Oil Price on the Verge of Something Big - Hero's Rarely Win - 23rd Aug 14
Oxaloacetate Feeds and GROWS Brain Cells - Alzheimers Cure? - 23rd Aug 14
Gold Rising Interest Rate Fallacy - 22nd Aug 14
Jackson Hole: Myth of the All Powerful Central Banker Continues - 22nd Aug 14
Partying On In The Terror State - Thank God for Nuclear Weapons - 22nd Aug 14
The Something for Nothing Society - Lifecycle of Bureaucracy - 22nd Aug 14
Hitting The ISIS Panic Button In The Middle East - 22nd Aug 14
US Stock Indices 10-Year Consolidation Patterns ... Upside Breakouts? - 22nd Aug 14
Gold and Silver Price Getting Set To Explode Higher - 22nd Aug 14
Deflation's Final Curtain Call - Part II - 22nd Aug 14 - Clif_Droke
Gold Big Picture: Most Important - 22nd Aug 14
How the “Uncertainty Factor” Drives Crude Oil Prices - 22nd Aug 14
Inflation, Interest Rates, and Why You Should Own Gold - 22nd Aug 14
U.S. Interest Rates Can Rise States Fed President - 22nd Aug 14
Why Emotional Discipline is Key to Trading Success - 21st Aug 14
Getting the Most Value from Your “Geriatric Cruiser” - 21st Aug 14
Mafia Boss Claims Stocks A Bubble, Buy Physical Gold and Silver - 21st Aug 14
Outrage! On The Beheading of Our Media Brother James Foley - 21st Aug 14
Stock Market Crash a Historical Pattern? - 21st Aug 14
The Black Box Economy - 21st Aug 14
The Bond Market is taking Advantage of Janet Yellen`s Dovishness - 21st Aug 14
Meet Your Investment Manager - 21st Aug 14
Gold and Silver Trading Alert as U.S. Dollar Soars to New Highs - 21st Aug 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

Japan Earthquake: Impact on Crude Oil, Fuel and Nuclear Power

Commodities / Crude Oil Mar 13, 2011 - 02:49 PM GMT

By: Dian_L_Chu

Commodities

Best Financial Markets Analysis ArticleA 9.0-magnitude earthquake rocked Japan on Friday March 11, prompting a 30-foot tsunami slamming the country's northeast coast. Media reported that one major oil refinery was caught fire while nearly a dozen nuclear plants were shut down leaving Millions of buildings around Tokyo without power.




Crude oil saw a pullback breaking the recent uptrend from the Libya and Middle East unrest.  Reuters reported that there were six refineries that account for 31% of Japan's output shut down after the quake and it was unclear when they would reopen.  Some media reports suggested the crude oil price drop is largely due to expectation that these refinery shutdowns could mean less imports of oil.

Earthquake or Rollover?

So, not surprisingly, I received an email asking whether the drop of crude oil is related to Japan’s devastating earthquake, or more the result of the mass rollover from United States Oil (USO) and the triple expiration as discussed in my previous post.

While there’s not one easy answer, a good place to start is to review some oil barrel statistics of Japan.

Japan Imports = 1.6% of World Demand

Based on the U.S. EIA data, Japan imported 4.7 million barrels a day (bpd) in 2009, with total oil refining capacity of 4.6 million bpd at 29 facilities as of January 2010. According to Reuters, the six refineries that are shut down have a total capacity of 1.40 million barrels per day (bpd).  That's about 1.6% of the 89.3 million bbl/d global 2011 product demand forecast by the International Energy Agency (IEA).

While Japan is the second-largest net importer of oil in the world after the United States in 2009, the  estimated import disruptions due to the earthquake does not appear significant enough to sway world’s crude oil market. 

China Trade Deficit - Major Catalyst

From various indications, the drop of crude price after Japan's earthquake could be partly attributed to the  knee-jerking reaction to a devastating natural disaster, some risk-off profit taking, USO starting its rollover on March 8, and the fizzled “Day of Rage” protest in Saudi Arabia.

However, the major catalyst for the downward pressure on crude oil before and after the Japan earthquake was the surprise trade deficit number--$7.3 billion, the largest in 7 years--coming out of China signaling an possible economic slowdown.

Japan to Increase Energy Imports after the quake

On the other hand, since about 25% of Japan’s electricity is coming from nuclear, the resulted power shortage due to closures of a dozen nuclear reactors after the quake suggests Japan will likely need to increase its imports of petroleum products and other energy sources (See Chart). 


The country’s power generation relies mostly on coal and natural gas, which means there will be an increase in imports of diesel (to power generators), and other petroleum products (since part of domestic production is offline), along with natural gas/LNG, and coal, just to keep the the entire nation going in the aftermath.

Fuel Prices Could Spike

The oil import disruption at Japan is unlikely to wrangle an upward momentum out of crude oil.  However, the Japanese refinery shutdown happens to coincide with planned shutdowns of crude units led by China and Japan that will cut 2.12 million barrels of output a day, or 6.8% of the region's total, in the April-June quarter, according to Reuters

Moreover, the second quarter is the typical refinery turnaround season with a substantial amount of crude processing capacity offline.  As such, there could be a tightening of the global petroleum products market, and spikes in the prices of petroleum products including gasoil (diesel), gasoline, along with LNG and coal prices.  This will likely benefit other Asian refiners in South Korea, Taiwan and China and oil majors such as Shell (RDS) with refineries in the region.

Meanwhile, construction, engineering and industrial material and equipment companies should also benefit from the massive rebuilding effort in Japan.  And some analysts also see a technology product price spike and supply crunch since Japan is a major high tech center of the world that could impact earnings in the tech sector. 

More Pressure from Triple Expiration

Now, turning back to the crude market in the week ahead, escalating call option trades (see chart)—the highest since July 2009--suggest the major rollover action is yet to occur.

Since there's not a real physical supply shortage, and  Cushing is brimming with crude unable to take delivery, more downside could be expected in the April crude contract from March 15 to March 22 with the triple expiration on ICE and NYMEX, which would further pressure both WTI and Brent.

From a technical perspective, $95 seems a solid target for the WTI, and Brent could come down to $109 or $108 range.


Japan Nuclear Meltdown Crisis

Besides crude oil, I think the biggest story out of this international disaster for the energy sector is the near materialization of the greatest obstacle and fear of the nuclear power – a possible nuclear reactor meltdown.

As of this writing, Japan is still struggling to contain the situation, and has resorted to using salt water to cool two reactors at Fukushima Plant. The reactors were damaged by the earthquakes, and could be at risk of meltdowns and spreading radiation.

U.S. Nuclear Power - 3 Decades of Void 

The U.S. has 104 nuclear reactors producing 799 billion kWh in 2009, or over 20% of total electrical output, according to World Nuclear Association. Although the US is the world's largest producer of nuclear power, accounting for more than 30% of worldwide nuclear generation of electricity; very few new reactors were built in the past 30 years after the Three-Mile incident in 1979.

However, despite big obstacles like cheap natural gas, high project costs and the Great Recession sapping demand in recent years, nuclear power was staging a comeback when President Obama's 2012 budget proposed $36 billion in loan guarantees to build nuclear power plants. The industry is expecting 4-6 new units to come on line by 2018, a result of 16 license applications to build 24 new nuclear reactors made since mid-2007.

Fukushima - The Deepwater Horizon of Nuclear Power

Now, the little progress the U.S. nuclear power sector has made in the past three decades could see a major setback, if not completely decimated, by the worst nuclear accident in Japan’s history.  There will likely be a more regulatory scrutiny, and a seismic shift in the global energy mix where more resources will be pouring into natural gas, clean coal and renewable, instead of nuclear.

In a way, Fukushina is the Deepwater Horizon of the nuclear power sector, and it fair to say it might take another 20 years of zero incident to get nuclear power back into the energy fold. 

Nuke Write-off?

On that note, future investments in nuclear power could be even harder to come by, and companies like NRG Energy (NRG) and Southern Company (SO) may need to scrap or write off their planned nuclear power projects, which could impact their forward earnings, and stock valuation.

Different Impact on Different Sectors

While the world is still in shock watching this tragic disaster still unfolding on TV, different sectors will likely experience different impacts from this unprecedented event.

In this case, it is most likely a non-event for the crude oil, and the nuclear power basically has met its Deepwater Horizon.  Likewise, other Asian refiners and companies specializing in infrastructure building could get an unexpected boost in their business, while consumers would likely feel the pinch in the form of higher fuel and technology product prices.

Dian L. Chu, M.B.A., C.P.M. and Chartered Economist, is a market analyst and financial writer regularly contributing to Seeking Alpha, Zero Hedge, and other major investment websites. Ms. Chu has been syndicated to Reuters, USA Today, NPR, and BusinessWeek. She blogs at http://econforecast.blogspot.com/.

© 2011 Copyright Dian L. Chu - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014