After the tsunami attack in Japan that started on Friday, the effect it will have on the financial markets will remain to be seen, however the damage it caused the Japanese economy is staggering and there is still concern over the partial meltdown of the Nuclear Reactor in Fukushima. The Libyan riots continue to be a concern even though their effect on the oil markets continues to subside.
Let’s review the main news items that are related to the oil market and might affect crude oil price as of March 14th:
Japan’s tsunami attack
After the tsunami attacked the shores of Japan because of earthquakes, which were registered at 8.9 on the Richter scale, there are reports of as many as 10,000 causalities due to this turmoil. Most the damage was caused in the Northeast of Japan. Tokyo is reported to be less affected by the tsunami than other regions in Japan.
The biggest concern Japan has is the Nuclear Reactor in Fukushima, located 150 km north of Tokyo. Up to now the reactors suffered a partial meltdown as there were three explosions over the weekend including today.
Japan is the third in usage of nuclear energy in the world and has 53 reactors that supply 34.5% of its energy usage. Japan has a plan to reach 50% of its electricity usage by nuclear energy by 2030.
The problem is that the Nuclear Reactor in Fukushima, as many other reactors, isn’t designed to withstand such strong earthquakes, because Japan started to develop its nuclear energy facilities 40 years ago at a time when the seismic activity was low.
It’s not clear how this disaster will end, however it’s still a prime concern that is far from being resolved, because there aren’t sufficient cooling measures to cool down the reactor in Fukushima.
On Friday the financial markets reacted promptly to the bad news from Japan and there were falls in many markets including energy market as crude oil price fell over the weekend.
Libyan riots update
Qaddafi’s air strikes managed to ward off the rebels from their front lines in Ras Lanuf after the air force bombed Oil pipeline leading to Es Sider town and storage tanks in Ras Lanuf oil terminal, the eastern part of Libya. The Arab League urged the United Nations to no fly zone over Libya in attempt to slow down the assault Qaddafi’s air force imposed on the rebels.
EIA energy report
The EIA updated its energy report with an outlook for 2011: In the report it’s shown that WTI spot oil price is estimated to be 102$/b and 105$/b for refineries. This updated outlook shows increases in the oil price forecast. This is based on the assumption that the GDP in the US will grow by 3.3% in 2011 and the real GDP world growth (weighted by oil consumption) will be 3.8% in 2011.
“Day of Rage” in Saudi Arabia
Due to the turmoil in Japan the news didn’t cover the day of rage, which was planned on Friday, March 11th, in Saudi Arabia. For now the tension seem to subsided, however it will remain to be seen if this eruption in Saudi Arabia was a one time event or will it rise again and stir up the energy market in the near future.
Current crude oil price
European markets currently show mixed trends for major oil prices:
The Nymex crude oil price, short term futures (April 2011 delivery) is traded at 100.34USD / barrel, a 0.82 USD/b decline or a 0.81%, as of 14.31*.
The Dated Brent spot crude oil is at 113.34USD / barrel – a 0.4USD/ barrel increase as of 14.41.*
(* GMT)
In the graph below are the changes in crude oil prices 2011 and the effect of Libyan riots as well as the Egyptian riots (as of March 11th).
Crude Oil price Outlook and Analysis:
If I would to speculate, the recent development in the Far East mainly the tsunami attack on the shores of Japan is probably the main news item that will stir up the financial markets in general and the oil markets in particular. On the other hand the effect of the Libyan turmoil has on crude oil prices continue to subside as other OPEC members pick up Libya’s oil production and increase theirs’, and by doing so reduce the pressure of oil prices to further increase.
Thus crude oil prices might continue to drop as the day will progress.
The Brent oil and WTI spread: as of Friday, March 11th the difference between Brent and WTI reached 11.74$/b, during most of last week, the gap between the two commodities’ prices was at the 11-12$/b range.
Here is a reminder of the top news that will be published today that might influence the markets (all times GMT):
Today:
12.30PM – Capacity Utilization Rate reported by the Statistics of Canada
23.30PM – Minutes of the policy meeting of the Reserve bank of Australia.
Tomorrow:
18.15PM – Decision on Federal Reverse’s Interest Rate
[ratings]
For further reading (in this site):
- Petroleum stocks keep on falling | EIA raise oil forecasts – March 10
- Weekly outlook for 14-18 March
- The rise and fall of oil prices – Weekly recap 7-11 March