Pray for Some Luck
Japan is going to need the luck of the Irish if they are going to get their nuclear situation under control. The suffering and pain in Japan is immense and to add to that, the threat of nuclear catastrophe is a trial that no human should have to endure. Overnight, in a desperate attempt to cool nuclear reactors, Japanese military helicopters dumped water on top of the Fukushima Daiichi nuclear plant. The other plan was to bring in a power line that could restore power to the area so they would have that ability to pump in water and avoid a further catastrophic event. An event that would raise the fear of oil demand destruction and take a bite out of global economic growth.
At the same time, in the Middle East the growing threat to peace and stability is a growing one as violence in Bahrain and the presence of Saudi Arabian security forces are raising tensions with their old advisory Iran. Iran is a backer of the Shia and has recalled its ambassador to Bahrain in protests for the killing of some Shia citizens. Iranian President Ahmadinejad threatened Saudi Arabia and the US directly by saying we have friends and those regional rulers need to find a "fair and Islamic" solution, or if not face the same fate as Saddam Hussein when he invaded Kuwait.
The raising of the stakes with tension rising between Iran and Saudi Arabia cannot be lost on the global oil market as those two county's oil production accounts currently for over 12 million barrels a day. Add to that instability, Libya. According to Reuters OPEC member Libya is the world's 17th-largest oil producer, third-largest producer in Africa and holds the continent's largest crude oil reserves. It normally pumps around 1.6 million bpd, 85 percent of which is exported to Europe. Output is normally equivalent to about 2 percent of global consumption, and unrest has cut it to about 500,000 bpd as many foreign and local workers have left the fields.
Reuters reports that, "Gaddafi's forces recaptured the eastern town of Ajdabiyah, which commands roads to Tobruk and Benghazi, the rebels' stronghold. All Libya's oil export terminals except Tobruk in the east are back under central control, the head of the Libyan oil workers' union told Reuters on Tuesday. Agoco, an oil firm based in rebel areas, said it was now only pumping oil to Tobruk in the far east of Libya after Gaddafi's forces retook Ras Lanuf."
Now Dow Jones says Gadhafi forces have taken control of Misrata. Libya's oil is going to be tainted and even if Gaddafi maintains power, they will face global economic sanctions.
The dual threat to both the supply side and the demand side played out across the all of the global financial markets yesterday in an epic struggle to try to remain calm and access the plethora of risks. Risks of possible historic proportions unlike any that we have ever seen before. Still the big question is whether the market is overreacting to these risks or whether the level of fear is justified.
Many markets were trying to put the nuclear risks in perspective, yet comments from EU Energy Commissioner Guenther Oettinger caused a surge of panic across the entire spectrum of the global market place. Traders ran for cover when he said that, "The situation at the Japanese reactor is effectively out of control" and "there could be catastrophic events within the coming hours."
The markets came back quickly after the comments when traders realized that he was not privy to any information that the rest of us were not. Now some criticized him for those comments thinking they caused undue stress in the marketplace, yet others are more critical of the Japanese for not being more forthcoming. The U.S., China and Europe all to one degree or another are unhappy with the way Japan has released information and underplayed the risks. Risks that until the nuclear situation is under control are still undefined.
The AFP reports that, "China on Thursday urged Japan to release ‘timely and precise’ information on its unfolding nuclear crisis, amid growing Chinese fear of radioactive contamination from its stricken neighbor. ‘We hope the Japanese side will release information, as well as its evaluation and prediction of the situation, to the public in a timely and precise manner,’ foreign ministry spokeswoman Jiang Yu said."
As we look beyond the pressing nuclear issues, the ramifications for oil are obviously very bullish in the long-run. The world is putting nuclear power on hold. Bloomberg News reported that, "Chancellor Angela Merkel said she doesn't plan to close all of Germany's nuclear reactors as a result of the atomic crisis in Japan. Merkel, in a speech to lower-house lawmakers in Berlin, said her decision to close Germany's seven oldest nuclear plants for three months while checks are carried out on the industry is guided by the principle of ‘safety first.’ ‘I'm against shutting down our nuclear power plants only to have atomic power imported to Germany from other countries,’ Merkel told lawmakers as she outlined her government's response to the crisis in Japan. ‘That won't happen on my watch.’”
China also said that they would suspend nuclear power plants approvals. This will increase the demand for oil as well as natural gas. Today we get the natural gas report and expect some fun because of the April crude option expiration! Happy St. Patrick's Day!
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.