Crude's Fall After Quake Likely Short Lived

SINGAPORE - Oil prices fell on Friday as the markets for petroleum products has been strengthened following a strong earthquake and tsunami in Japan, although the extent of the impact on oil infrastructure is still not clear, traders said.
The reaction of the crude oil futures may be temporary, as the market remains focused on the unrest in the Middle East and North Africa as the conflict intensifies in Libya and threatened to escalate protests in Saudi Arabia, the largest oil exporter, traders said.

Oil prices weakened in the market to assess potential disruptions in refining capacity and the impact on oil demand in general, after an earthquake of 8.9 magnitude rocked the country, while the tsunami waves crashed into the coast and threatened a number of other countries.
The fire broke out at least two Japanese refineries, while another was closed due to power failure, but the extent of damage to refineries was not immediately clear.
For crude oil "demand destruction is going to happen, so the fixed price is off," said a trader in Singapore.
New York Mercantile Exchange crude oil futures, which traded around 80 cents, when news of the earthquake came, fell another $ 1 per barrel, more reports of damage emerged, before paring some of those losses. The April light Nymex trading, crude contract was at $ 101.30 a barrel by 1012 GMT, down $ 1.40.
"There is still much uncertainty here," said Ken Hasegawa, a broker at Newedge Japan in Tokyo. Oil futures "have come after the earthquake, but once the initial reaction is the market focus will turn to the Middle East."
The earthquake had a more bullish impact on the markets of petroleum products, sending more quickly, Mr. Hasegawa said. The margins for refiners in other places is likely to improve as it strengthens the supply in the spot market oil and diesel fuel, traders said.
market structures of petroleum products were the strengthening due to the concern that Japan's refinery shutdowns will reduce supply-demand balance of petroleum products in the regional market, and forcing the country to increase imports and reduce exports .
Cosmo Oil Co. closed its Chiba refinery of 220,000 barrels per day due to fire, while Nippon Oil JX shut its 252,000 barrels per day Kashima and Negishi refinery of 270,000 barrels per day. Industry executives said that operations at 145.000-JX barrels per day Sendai refinery may also have been affected by the earthquake. The refinery could not be reached by telephone.
In the fuel oil market, traders noted a rise in Japanese imports of the product - is used for power generation - after a 2007 earthquake in several nuclear power plants has been disconnected.
Japan has generally been reduced purchases of fuel oil for power generation, relying increasingly on clean-burning natural gas, but nuclear power plant shutdowns due to the earthquake may force the country to import more volumes of other fossil fuels such as fuel oil for power generation, traders said.
According to news reports, at least two nuclear power plants in the Pacific Coast of Japan shut down automatically after the earthquake on Friday. The country's largest utility, Tokyo Electric Power Co., said its nuclear power plants are also automatically stopped, according to reports in the media. A fire also broke out in the Onagawa nuclear station near the epicenter of the earthquake.
"The products are reacting to higher" in general, a second trader based in Singapore, with a Western company said. "The structure of fuel oil is well bid."
While it remains uncertain how long the nuclear power plants and refineries were shut down, news of the earthquake timespreads intermonth quickly drove the market for the fuel oil is in backwardation, reflecting expectations that demand for fuel oil system will be greater future demand.
The April / May timespread 180 centistokes oil swaps high sulfur fuel was trading at $ 5.75 per metric ton in backwardation, up from $ 4.75 a tonne in early Friday. It peaked at $ 6.10 per tonne shortly after news of the quake.
"The loss of Japanese production was marginally higher," said the second trader based in Singapore. "It spreads worldwide petroleum products are rising."
Reaction in the gasoline market was largely muted, with the crack product advancement against Brent crude futures fell to a nine-day of $ 137.30 per ton, with buyers on the sidelines while the market assesses extent of damage in the quake.
While the domestic supply is interrupted due to refinery outages, shutdowns of two Mitsubishi Chemical Kashima cookies with annual production capacity of 828,000 tons of ethylene also reduced demand.
Many companies showed their interest in deberthed burdens and to examine whether there is any damage to pipelines and port facilities. "The key is how long refineries remain closed and cookies," a trader said.
Traders said the gas-oil exports to Japan fall, strengthening the regional market, as some refineries may declare force majeure on its export commitments.
Japanese refiners sell oil primarily in long-term contracts and to stop these is likely to increase the premiums of the product in situ and crack spreads, improved refinery margins elsewhere.

(Source: http://online.wsj.com/article/SB10001424052748704468904576193932392368562.html)