Friday, March 11, 2011

Negative impact on crude oil

The earthquake measuring 8.9 on the richter scale struck about 382 kilometres northeast of Tokyo, accompanying tsunami. This is the seventh largest recorded earthquake and a horrific event. Much of Japan is shutdown - transportation system is not running and people are stranded. Power plants have been shut down and there is an emergency nuclear situation as technicians struggle to pump water to cool on of the nuclear reactors. One refinery is on fire and others may be shut down. At the moment the situation is a mess and the impact of the earthquake is still a bit of a fog as things get sorted out.

Japan at a standstill and refineries shut down, the demand for crude oil is going to decline. Japan consumes about 4.4 million barrels per day of crude oil with about 99% of it imported. At least for the short term Japan is going to import less crude oil. On the other hand to the extent that enough refinery damage has occurred Japan will likely offset some for the crude oil import decline with imports of refined products. How much demand Japan will have for imported refined products in the short to medium term will be a direct function as to how quickly the country gets back to a more normal way of life as well as how quickly the refining system can get back on stream. At the moment it does not look like Japan will be experiencing any crude oil shortages rather if they do experience a shortage it will be in refined products. From an oil pricing perspective the situation in Japan is likely to result in a negative impact on crude oil prices and a positive for refined products.

Read lot more in Rubber4U – 15th March 2011 issue

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