There is now one more catalyst that can push up oil prices.
First, there is already the Middle East unrest, which has disrupted oil production in Libya and can potentially do the same to Iran and Saudi Arabia. Before that, the combination of loose US monetary policy and growing demand from the recovering global economy pushed oil prices higher.
Now, there is the long-term implication of Japan’s nuclear meltdown.
Although Japan is generally prepared for earthquakes that occur on land, it was caught off guard by the offshore seabed earthquake that occurred last week, which sent huge waves of an ensuing tsunami. The massive flooding is what really caught Japan by surprise, exacerbating damages to nuclear power plants, which led to the current radiation leakage crisis.
Given the gravity of the nuclear meltdown situation, it’s apparent that Japanese authorities did not fully comprehend the risk of having nuclear power plants in their disaster-prone country.
When this crisis is all over, it’s possible that Japan, or maybe even other countries, will choose to de-emphasize nuclear energy, said DBS Bank of Singapore.
Currently, Japan is the third largest oil importer in the world. Moreover, it has the third-highest number of nuclear power plants, which generates about 25 percent of its electricity and 11 percent of its total energy needs.
Given its huge overall energy demand and relatively high reliance on nuclear energy, the de-emphasizing of nuclear energy will likely increase its crude oil demand and thus put upward pressure on global oil prices.
So far, oil prices have actually fallen on news of Japan’s earthquake because of the expected short-term economic slowdown.
However, Japan is almost certain to recover in the medium-term after the rebuilding boom kicks in. Then, key issues for oil is how Japan and the world will view the safety of nuclear power plants.
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