Global markets are melting down as the second explosion at the Fukushima Daiichi nuclear power plant is raising fears of widespread nuclear contamination. The market fears that the world’s third largest economy may go into a long nuclear winter, freezing up global economic growth as well.
In response to those fears, the Japanese government injected $245 billion of additional capital to try to ease the markets concern. The drop in global equity markets is sending a clear message that the economic problems in Japan will not be contained. The fall-out will be felt throughout the globe and may reduce oil demand by a larger amount than just the oil that is not being refined right now in Japan.
A lot of traders have been complaining that oil is not stronger based upon the fact that Japan will use more oil. The reason is the impact on global economic growth. As I have written before there are three phases in trading a disaster. The first is demand destruction, the second assessment, the third rebuilding. Because of the nuclear element to this disaster it is getting harder to get through that first stage.
We also have a Fed Meeting today. The situation in Japan will assure us that the Fed will not do anything to upset the applecart.
Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at firstname.lastname@example.org.