Andrew McKillop :Oil prices and
the japanese disaster: the herd got it wrong
Friday 11th trading on the US Nymex and to lower extent on the London ICE was driven by a quick sentiment-driven response to breaking news of the Japanese disaster.
Refineries were on fire, ports were closed and cars, buses and trucks were floating like jetsam, in the raging tsunami. Oil traders surmised that Japan's oil demand and its import draw on world supply were both set to fall and prices were sharply marked down through the day.
FRIDAY TRADERS MADE A WRONG WAY BET – BUY ON THE DIP
We can ask how the Herd got it wrong, and the answer is they made a mistake in all kinds of ways.
Even in the short term, probably within at most a week, Japan's oil demand and therefore its call on world export supply will be up.
The reasons are multiple.
Japan is faced by a major catastrophe. Heavy transport, cranes and earthmoving equipment, diggers and dozers will be moving into action fast. Some of these machines use a couple of barrels per hour, and both helicopter and airplane movements will be up in the ongoing rescue effort. Electric power
plants have been hit, and the energy shortfall will be made up in part with oil-powered gensets. Worried Japanese will be driving where they can, when they can, and filling up on oil at every station they can find with remaining supplies. While the weather stays unusually cold in Japan, oil heating demand will also be up.
The next reason that will make oil prices bounce, and can speed Japan's oil demand recovery is the massive damage to nuclear power plants and the image of nuclear power in Japan.
Both on fundamentals and on sentiment, when nuclear power takes a hit oil will gain. We do not yet exactly know how many nuclear plants are seriously damaged, and could explode like the 1986 Chernobyl disaster, but every reactor that is down will lever up oil demand.
Sentiment will translate that to an outsized rise for oil futures, with the rise getting bigger every day the Japanese government has to sidestep and parry questions on their ageing nuclear plants and how well, or how badly they resist earthquakes and tsunami.
Worldwide concern about nuclear power's safety and real ability to deliver cheap electricity, and its real ability to save oil will grow, as the Japanese disaster deepens and more information trickles out.
Whenever more balanced truthful information about nuclear power emerges, oil will always gain.
COPYRIGHT ANDREW MCKILLOP 2011
Andrew McKillop is a Founder member, Asian Chapter, Internatl Assocn of Energy Economists and Former Expert-Policy and programming, Divn A-Policy, DGXVII-Energy, European Commission. Author of several books on energy, environment and development published in UK, Canada and USA.
( email@example.com) His latest book is ‘The Final Energy Crisis', Pluto Press, London. Also, Petroleumworld is negotiating the rights for the Spanish edition. Its views are not necessarily those of PETROLEUMWORLD.
Editor's Note: All comments posted and published on Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of Petroleumworld. All comments expressed are private comments and do not necessary reflect the view of this website. All comments are posted and published without liability to Petroleumworld,
Use Notice: This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of environmental and humanitarian significance. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml.
All works published by Petroleumworld are in accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.Petroleumworld has no affiliation whatsoever with the originator of this article nor is Petroleumworld endorsed or sponsored by the originator.
Petroleumworld encourages persons to reproduce, reprint, or broadcast Petroleumworld articles provided that any such reproduction identify the original source, http://www.petroleumworld.com or else and it is done within the fair use as provided for in section 107 of the US Copyright Law.
If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner. Internet web links to http://www.petroleumworld.com are appreciated
Petroleumworld News 03/14/2011
Petroleumworld welcomes your feedback
and comments, share your thoughts on this article,
your feedback is important to us!
We invite all our readers to share with us their views and
comments about this article, write to firstname.lastname@example.org
Copyright© 1999-2010 Petroleumworld or respective author or news agency. All rights reserved.
We welcome the use of Petroleumworld™ stories by anyone provided it mentions Petroleumworld.com as the source. Other stories you have to get authorization by its authors
Send this story to a friend Any question or suggestions,
please write to: email@example.com
Best Viewed with IE 5.01+Windows NT 4.0, '95, '98, ME,
XP, Vista, W7 +/ 800x600 pixels