Oil Prices Outlook & News Update – March 18
The adverse effect of the tsunami attack on Japan continues as there are growing concerns for an ecologic disaster due to radiation leaks from the nuclear reactors' cores in Fukushima. The UN decided to enforce a no fly zone in Libya and in Yemen the riots continues.
Let's review these news items that are related to the oil market as of March 18th:
Yesterday, the UN finally decided to take action and impose a no-fly zone over Libya – a threat on Qaddafi to cease his army from its air assault on the Libyan rebels.
This decision is only one of several military actions the UN decided to implement in Libya in order to "take all necessary measures” to protect Libyan civilians. As a result, the Foreign Minister of Libya declared a ceasefire, but this declaration didn't deter the Allies' military planning to take action against Qaddafi army to secure the no-fly zone.
The riots in Yemen continue as there are reports of dozens of dead during the violent protests in Sana – Yemen's capital against the current regime and PresidentAli Abdullah Saleh, who has been ruling Yemen for the last 32 years. The protestors call for the resignation of Saleh and the implementations of reforms in the current regime.
The current concern in Japan is related to the Nuclear Reactor in Fukushima as there is a risk of a nuclear ecologic disaster in the region. Due to the tsunami and the earthquake that followed, it's not clear if the Japanese engineers control the cores condition in the reactor. It's early to talk about the aftermath of this disaster has befallen on Japan, however that day will come and then there will be questions to be asked in regards to Japan's recovery and energy solution in the short and long term (more on that below).
Oil prices outlook and analysis:
The news from the Middle East and North Africa is probably one of the prime catalysts of the energy market, mainly crude oil, to fluctuate at such high velocity. If I would to speculate, this news along with the current turmoil in Japan will continue to affect the uncertainty of the energy market resulting in ongoing rapid rises and falls with no clear trend in the short term, until the uncertainty will subside.
There are questions about how will Japan overcome this disaster and how it will met its energy needs in the short and long term; seeing that it uses nuclear energy as one of its prime energy resources. Japan is the world third in usage of nuclear energy and has 53 reactors that supply 34.5% of its energy usage. In the recent tsunami 11 of its nuclear power reactors were damaged along with five of its oil refineries.
In regards to the Middle East, the main short term affect is the shortage in crude oil from Libya. Even though several OPCE members, mainly Saudi Arabia, increased their oil production, there are supply frictions and delivery impediments that caused the prices of oil, mainly in Europe, to rise. For more on the adverse affect of Libya on the petroleum market see here.
The gap between Brent and WTI: as of yesterday, March 17th the premium of Brent over WTI further widen and reached 13.39$/b – the highest level on over two weeks; this shows how erratic and unstable the energy market and might suggest how the European oil market is tighter than the US oil market. I speculate that it will continue to range around 9-14$/b.
Here is a reminder of the top news and reports that are planed for today and tomorrow that might influence themarkets (all times GMT):
9.00AM – Euro area balance of payments
10.00AM – Euro area trade of balance
Written by Lior Cohen, Energy Analyst for www.TradingNRG.com
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