Oil markets took another hit after news of Friday’s devastating 8.9 magnitude earthquake and subsequent Tsunami in Japan, the world’s third largest economy and third largest oil consumer.
Traders are said to have bearish expectations on demand at least for the near term according to analysts from BMO Commodity Products Group quoted by AFP.
“Longer term demand will probably increase if nukes remain offline,” they said, referring to the nuclear power stations that went into automatic shutdown during the quake and are likely to remain so for some time.
Despite the ongoing tensions in the Middle East and in particular Libya, April delivery contracts at both New York and London closed at $101.16 a barrel (down $1.54) and $113.84 (down $1.59) a barrel respectivel on Friday.
The Japanese government said that its quake-damaged Fukushima nuclear power plant about 250 Kilometres northeast of Tokyo experienced a massive explosion at one of its reactors, now well-documented on video.
The nearly quarter of a million residents living near the plant have been evacuated and there are fears that a Chernobyl-like disaster could be looming.
Japan has 54 nuclear reactors supplying some 30% of the country’s electricity requirement, which it expects to increase to 40% by 2017.
The Number 2 unit of an oil refinery owned by Japan’s Cosmo Oil Co. in Chiba prefecture on the east coast which bore some of the quake’s impact burst into flames with reports saying that it has yet to be brought under control and extinguished.
Just a day before the earthquake, Cosmo Oil had resumed normal operations of its 25,000 bpd No. 2 catalytic reformer at the Chiba refinery following shutdown due to an unspecified problem on February 13.
JX Nippon Oil & Energy, a unit of JX Holdings, said a fire broke out near an LPG tank at its Sendai refinery, according to Reuters.
Japan has 28 refineries with a total crude refining capacity of 4.52 million bpd. The country imports around 80% of its overall energy requirements using a mix of nuclear and fossil fuels for power generation.
Both Saudi Aramco and Abu Dhabi’s ADNOC have agreements with Japan to store crude in the country. In December Aramco signed a three-year agreement with Japan Oil, Gas and Metals National Corporation (JOGMEC) to store oil at its 3.77-million-barrel capacity facility in Okinawa, to the south of Japan which is far from the earthquake’s epicentre.
Saudi Arabia alone supplies 30% of the island nation’s total consumed oil and exports more than 50% of its output to Asia where it sees increasing demand, more so than its traditional export markets of the US and OECD countries.
