We’re getting a little more detail on what the the increase in Japanese oil demand is going to mean for the broader energy market in the wake of the country’s nuclear disaster.Citi oil and gas analysts now say that the increase in Japanese demand, in response to the loss in nuclear electricity output and 31% of Japan’s refiners being closed, is bullish for oil and oil refiners.
On oil demand from the nuclear loss, from Citi’s Faisel Kahn (emphasis ours):
Near-Term Expectations – We estimate we could see residual fuel demand in Japan rise by 150 kbod for the rest of the year. This would be used for fuel in Japan’s thermal power fleet to offset lower nuclear power availability. While this demand increase is small in the global context of demand, it is likely to provide strength to an already elevated oil price. We expect global distillate crack spreads to remain elevated given the refining outages in Japan with particular strength in the Pacific basin.
On refiners being shut, from Citi’s Takashi Miyazaki (emphasis ours):
Conclusion — As of March 14, we understand six oil refineries (31% of Japan’s capacity) are inoperative. However, with a likely increase in freight volume and greater utilization of oil-fired power plants, we think demand for petroleum products like gasoline, light oil, and heavy oil will rise. Petroleum refiners are being asked to play a key role.
We’ve pointed out before why the increase in Japanese demand is bullish for oil, particularly when coupled with supply issues originating from the Middle East. While the Libya situation looks like it’s nearing a bloody resolution, Bahrain’s stability is still very much in doubt.
Since the start of the Japanese crisis, we haven’t seen oil prices rise. That might have more to do with eyes off the ball in the Middle East rather than the situation improving in any substantial way.