Libya attacks, Japan demand to extend support for oil prices

22 March 2011 14:13  [Source: ICIS news]

LONDON (ICIS)--Coalition attacks on Libya will keep oil prices supported for longer than expected, while future reconstruction in Japan and a loss of some nuclear power capacity in the country will prevent any sharp falls, market sources and analysts said on Tuesday.

Crude oil futures were trading marginally in negative territory, with Brent just below $115/bbl and remaining supported by the ongoing conflict and unrest in North Africa and the Middle East.

The attacks on Libya, however, were having little impact because the markets have already priced in the fact that supplies from the country are disrupted.

Oil prices have not moved any higher from last Friday, before the military action began, a report from trade advisory company Petromatrix said.

“The internal fights within the coalition about who is in charge and in command is starting to get more coverage than the actual bombings and that will continue to make it hard to forecast what tomorrow will bring in Libya,” Petromatrix said.

Physical oil traders said there was little or nothing of the 1.6m bbl/day capacity coming out of the country because it was too risky to send tankers to load there, there were difficulties insuring cargoes, freights were too high, and with the current embargo trading was difficult.

With the bombing likely to keep supplies disrupted for longer, Commerzbank analyst, Carsten Fritsch, said prices will remain elevated above $100/bbl at least until the middle of this year, and then if Japan resolves its nuclear crisis, reconstruction and loss of some nuclear power will lead to higher demand.

Demand for oil in Japan should rise significantly because 20% of nuclear energy will be temporarily or permanently shut down and this will be compensated by coal, gas and oil, Commerzbank said in a research note on Tuesday.

On Tuesday 15 March, oil prices posted losses of more than $5/bbl with Brent reaching below $109/bbl as the Japanese crisis created uncertainties and resulted in investors taking money out of the markets.

As the week progressed and a clearer picture emerged in Japan, prices recovered as violence in Libya continued. The markets were anticipating an increase in demand from Japan to compensate for the loss of nuclear power and for reconstruction.

“Concerns over the impact of events in Japan on the economy provoked a sharp, though brief, sell-off last week, but we expect the increased demand for oil-fired generation will far outweigh oil demand lost to reduced economic activity,” Goldman Sachs said in a report on Monday 21 March.

At GMT 13:05, May Brent was at $114.31/bbl, down $0.65/bbl from the close on Monday, while April WTI was at $101.58/bbl, down $0.75/bbl.

($1 = €0.70)

By: Giovanni Coiro
+44 20 8652 3214

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