Japan's 8.9 earthquake lowers oil prices, but they're still above $100 a barrel
8.9 earthquake closes some Japanese refineries. Signs of quiet on planned 'day of rage' in Saudi Arabia also dampen oil prices, but longer outlook is still for strong demand, uncertain supplies.
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Globally, oil prices are driven not only by geopolitical uncertainty, but also by immediate factors of supply and demand.Skip to next paragraph
In Pictures Japan's 9.0 earthquake
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In Japan, the earthquake will effect the demand equation in the near-term, and energy analysts scrambled Friday to gauge the implications. Slower shipments of crude oil to Japan (because of temporary refinery closures) could be offset by higher Japanese imports of refined products from other nations (including the US) to fill the gap.
In the mid- to long-term, Japan will have to rely on equipment using fossil fuels in its rebuilding efforts. But other forces could push demand down. The country already has a large government debt, and adding more debt for reconstruction could push up interest rates, some economists say. If that occurs, and weighs on already-weak economic growth in Japan, the result could be cooler-than-expected oil demand.
"Japan’s economic recovery has lost momentum, and a large part of the reconstruction costs will add to the government’s significant debt burden," says Julian Jessop of Capital Economics, in a written analysis Friday. "It will be that much harder to deliver a credible long-term fiscal plan in the summer if the economy is stuck in recession, the public finances are in an even worse state, and many people are still suffering the after-effects of this disaster."
On the other hand, initial estimates of economic fallout from disasters often prove too high, his report noted, and this quake appears to have done less economic damage than the one that struck Kobe, Japan, in 1995.
For the US, recent gyrations in oil prices are a reminder that the economy's heavy reliance on oil carries economic risk with it. Obama used his press conference partly to reiterate calls for a bipartisan energy strategy that would emphasize new domestic drilling, conservation, and investments in renewable sources of power.
Obama said the recent surge in oil and gasoline prices hasn't been large enough to derail the economy's recovery, but that it's time for the nation to "get moving" on energy strategy.