Developments this week
The fall in oil prices which began early last week continued through Tuesday, but prices rebounded on Wednesday as NY oil closed at $98.98 and Brent at $110.62. Concerns over the possibility of major disruptions to Japan’s economy due to radiation from leaking nuclear reactors outweighed fighting in Libya and growing protests in Bahrain. The situation in Japan is still very much open. Six nuclear reactors are still having a variety of problems ranging from partial meltdowns and radiation leaks, through fires and explosions, to dangerously high temperatures. So far life-threatening levels of radiation have not spread much beyond the nuclear facilities but there are concerns that the situation will get worse.
Japan’s economy has dropped into low gear with many major factories closed and the Tokyo area is being subjected to rolling blackouts to save electricity. Many foreigners are leaving the country. About 27 percent of Japan’s electricity is generated by 54 nuclear reactors. Six of these are likely to have been so badly damaged that they will never be returned to service.
Once the reactor situation is stabilized it is likely that Japan will be forced to import substantially more natural gas, crude, and oil products to make up for the damaged reactors and to support the cleanup and rebuilding of the regions damaged by the tsunami.
While US crude stocks climbed by another 1.7 million barrels last week, gasoline inventories fell by 4.2 million barrels and distillates by 2.6 million. The glut at Cushing, Okla., continues. There are already concerns that eventual Japanese demand for gasoline and distillates will be driving up prices in the Pacific basin including the US west coast.
The IEA reported that world oil supply in February rose to an all-time high of 89 million b/d, up 200,000 b/d from January. China’s electricity consumption increased 16 percent year over year in February suggesting that its economy has not as yet slowed very much.
In the Middle East, Gadhafi’s forces appear to be making progress in their drive to suppress the rebellion in Libya. The last obstacle is the staunchly pro-rebel Benghazi, a city of 800,000 people. Taking this city should prove more difficult than taking control of small coastal town. If Gadhafi resorts to indiscriminate bombing or shelling of civilians in front of Western cameras, he risks game-changing UN intervention. The IEA says that Libya has virtually stopped exporting oil and is unlikely to resume exports for many months given the damage to facilities, the departure of foreign oil specialists, and the trade sanctions imposed by the UN.
With the dispatch of 1,000 Saudi soldiers to help prop up the Sunni government in Bahrain tensions have increased dramatically. On Wednesday demonstrations reached new levels of violence as government forces cracked down on Shiite demonstrators. All this is taking place just a causeway away from eastern Saudi Arabia, with its large Shiite minority and the main Saudi export terminal of Ras Tanura.