Japan's 8.9 earthquake lowers oil prices, but they're still above $100 a barrel
8.9 earthquake closes some Japanese refineries. Signs of quiet on planned 'day of rage' in Saudi Arabia also dampen oil prices, but longer outlook is still for strong demand, uncertain supplies.
NHK TV / AP
Oil prices fell Friday after a magnitude 8.9 earthquake struck Japan, one of the world's leading oil importers. The quake promises to slow Japanese refining activity, but energy analysts say the nation will continue import petroleum products as a recovery and rebuilding phase begins.
Those realities were reflected in financial markets Friday. Oil neared $99 per barrel as trading began in New York, down from the prior day's close of $102.70 (US prices for April delivery), according to data from Reuters. But by mid-day, that price had moved back above $100, as traders continued to assess quake impacts and events in Arab nations.
Oil markets are still operating in what some traders call a "new normal," reflecting heightened uncertainty about the potential course of political unrest in the Middle East, and about whether supplies from one key producer, Libya, will be interrupted for a protracted time due to civil war. At the same time, investors generally expect that the government will remain in place in oil-market linchpin Saudi Arabia.
The Saudi government has pledged to increase crude oil output to make up for Libya, which has accounted for about 2 percent of global oil production.
"Here's the good news," President Obama said in a Friday press conference. "The global community can manage supply disruptions" like what's occurring in Libya.
The president's remarks were framed by an acknowledgment that US consumers are being squeezed financially by gasoline prices that have risen more than 40 cents per gallon this year. Mr. Obama also said that, "should the situation demand it, we are prepared to tap the significant stock" that exists in America's Strategic Petroleum Reserve.
Globally, oil prices are driven not only by geopolitical uncertainty, but also by immediate factors of supply and demand.
In Japan, the earthquake will effect the demand equation in the near-term, and energy analysts scrambled Friday to gauge the implications. Slower shipments of crude oil to Japan (because of temporary refinery closures) could be offset by higher Japanese imports of refined products from other nations (including the US) to fill the gap.
In the mid- to long-term, Japan will have to rely on equipment using fossil fuels in its rebuilding efforts. But other forces could push demand down. The country already has a large government debt, and adding more debt for reconstruction could push up interest rates, some economists say. If that occurs, and weighs on already-weak economic growth in Japan, the result could be cooler-than-expected oil demand.
"Japan’s economic recovery has lost momentum, and a large part of the reconstruction costs will add to the government’s significant debt burden," says Julian Jessop of Capital Economics, in a written analysis Friday. "It will be that much harder to deliver a credible long-term fiscal plan in the summer if the economy is stuck in recession, the public finances are in an even worse state, and many people are still suffering the after-effects of this disaster."
On the other hand, initial estimates of economic fallout from disasters often prove too high, his report noted, and this quake appears to have done less economic damage than the one that struck Kobe, Japan, in 1995.
For the US, recent gyrations in oil prices are a reminder that the economy's heavy reliance on oil carries economic risk with it. Obama used his press conference partly to reiterate calls for a bipartisan energy strategy that would emphasize new domestic drilling, conservation, and investments in renewable sources of power.
Obama said the recent surge in oil and gasoline prices hasn't been large enough to derail the economy's recovery, but that it's time for the nation to "get moving" on energy strategy.