Crude Oil Drops as Loss of Demand in Japan Outweighs Middle East Tension
March 15 (Bloomberg) -- Adam Sieminski, chief energy economist at Deutsche Bank AG in Washington, talks about the impact of Japan's earthquake and future reconstruction on the country's energy demand. Sieminski speaks with Scarlet Fu on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
Oil fell to its lowest price in almost three weeks in London as concern that damage from Japan’s earthquake may limit crude demand outweighed speculation of supply disruptions in the Middle East.
Brent crude slid as much as 4.5 percent as factories, power plants, and about 29 percent of refining capacity remained shut in the world’s third-largest crude user following the March 11 temblor, the strongest in Japan’s history. Saudi Arabia sent troops into Bahrain in response to a request from its neighbor following demonstrations by Shiite protesters there.
“In the short term, demand is likely to take a hit,” said David Fyfe, head of the International Energy Agency’s oil industry and markets unit in Paris. “Initially, because of the curtailment of industrial activity, we may well see lower oil demand in Japan.”
Brent oil for April settlement fell as much as $5.13 to $108.54 a barrel, the lowest price since Feb. 23, and was trading at $109.01 at 11:47 a.m. on the ICE Futures Europe exchange in London. Crude for April delivery on the New York Mercantile Exchange was at $97.30 after dropping as much as $4.09, or 4 percent, to $97.10, the lowest since March 1.
Gasoline fell as much as 4.5 percent to $2.8268 a gallon in New York, the biggest intraday drop since Oct. 19. Prices are down 5.1 percent this week.
Saudi Soldiers
Crude prices erased gains that were driven by Saudi Arabia’s movement of forces into Bahrain. Saudi Arabia’s cabinet said the kingdom has responded to a Bahraini request for “support” amid civil unrest. Mainly Shiite protesters in Bahrain have been demonstrating since Feb. 14, demanding democracy through free elections from their Sunni monarch.
“The Saudis will not accept any sort of disruption in the nearby countries,” said Tetsu Emori, a commodity fund manager with Astmax Ltd. in Tokyo. “They have to stop this from happening so that’s why they are sending soldiers.”
Violence in Libya, which has cut at least two-thirds of the nation’s crude production, continued as forces loyal to leader Muammar Qaddafi carried out air strikes against rebels in the town of Ajdabiya.
Futures had surged more than 10 percent in New York as of yesterday’s close since Jan. 14, when the president of Tunisia was ousted. Prices climbed to a 29-month high of $106.95 a barrel trading March 7.
Refinery closures in Japan have affected about 1.3 million barrels of the country’s 4.52 million barrels a day of capacity, based on data from the Petroleum Association of Japan.
Refineries Closed
JX-Nippon Oil & Energy Corp. closed refineries in Sendai and Kashima in Japan’s northeastern Tohoku region. A fire at the Sendai plant was extinguished at about 2:30 p.m. local time today. The Negishi plant near Tokyo is also shuttered.
Cosmo Oil Co. shut its 220,000-barrel-a-day Chiba facility following fires at liquefied petroleum gas storage tanks. Kyokuto Petroleum Industries Ltd. has shuttered its 175,000- barrel a day facility in Ichihara, near the capital.
Sony Corp., the country’s biggest export of consumer electronics, stopped operations at 10 factories because of power outages and damages. Toyota Motor Corp., the world’s largest automaker, has closed all of its plants.
The U.S. Energy Department is scheduled to release its weekly report at 10:30 a.m. tomorrow in Washington. The industry-funded American Petroleum Institute will report its own data today.
Stockpiles of crude oil in the U.S. probably rose 1.75 million barrels from 348.9 million in the seven days ended March 11, according to the median of estimates before an Energy Department report tomorrow.
Gasoline inventories dropped 2 million barrels from 229.2 million a week earlier, according to the survey. Stockpiles of distillate fuel, a category that includes heating oil and diesel, slipped 1.5 million barrels from 155.2 million the previous week.
To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net
To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net
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