JAPAN DISASTER: Domestic crude oil demand to rise in 2011 - analyst

17 March 2011 18:01  [Source: ICIS news]

LONDON (ICIS)--Japan's demand for crude oil is likely to increase in the medium term as the country is expected to undergo an immense rebuild of its infrastructure, market analysts said on Thursday.

Although crude oil prices in the short term have suffered a negative impact from the earthquake in Japan, the situation will reverse once the country begins reconstructing its cities, said Barbara Lambrecht, oil analyst at Commerzbank.

Moreover, the country will have to compensate for the power loss left from the nuclear generation and some of it will have to come from oil fired electricity power plants, Lambrecht added.

“Once the nuclear disaster is resolved then reconstruction will begin,” said Harry Tchilinguirian, analyst at BNP Paribas.

When reconstruction begins then there will be an increase in demand for gasoline, fuel for heavy machinery and private power, Tchilinguirian added.

Meanwhile, high levels of radiation at the Fukushima Daiichi nuclear facility are causing further difficulties as attempts continue to stop the six reactors at the site from overheating.

Workers were evacuated as radiation levels are now considered fatal, following a series of explosions at the No 1, No 2, No 3 and No 4 reactors since Saturday. Helicopters are being deployed to continue with cooling operations, pouring seawater onto the reactors.

The International Energy Agency (IEA) estimated Japan’s demand for oil in 2010 at 4.42m bbl/day.

Expectations were of a slight contraction in demand of around 100,000 bbl/day for 2011, but it is likely that due to the reconstruction, demand will be flat and may even increase, Tchilinguirian said.

Meanwhile, crude oil futures were being supported by fears that turmoil in Bahrain could spread to other countries in the region, particularly Saudi Arabia.

At 16:50 GMT, Mary Brent was trading at $114.02/bbl, up $3.42/bbl from the previous close, while April WTI was trading at $100.93/bbl, up $2.95/bbl.

Click here for the latest news on the Japan disaster

By: Giovanni Coiro
+44 20 8652 3214

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