NEWS

Japan's Earthquake and Tsunami Effects on Crude Oil Prices

Japan will have to make serious decisions as to whether it will persue its current policy of using nuclear energy to fuel it energy demands following the impact its nuclear reactors may have on the environment

14 Mar 2011, 12:00 AM

By: gop

Japan's Earthquake and Tsunami Effects on Crude Oil Prices Worldwide (Rises and Falls)

Japan is one of the major players within the world market which determines the price of crude oil, and has caused oil prices to fall of late, but one can expect a rise later. The Japanese economy is the third largest importer of crude oil in the world, following The United States of America, and China.

Japan and other robust economies have been demanding large volumes of crude in order to fuel their economies. Japan has sought to supplement this demand by the use of nuclear energy in an economy whose fuel demands are supplied in part by the importation of crude oil which supplies 61% of that demand.

The Japanese have therefore turned to fifty-three nuclear reactors to supply some 34.5% of that country's fuel demands.

Japan having been struck by a 8.9 magnitude earthquake, and later a powerful, and destructive tsunami, has witnessed that country's nuclear reactors being affected at the Fukushima I Nuclear Power Plant, which prevented cooling pumps for reactor #1 from functioning due to electrical problems. There has also been reports of radiation exposure at reactor #3 of that facility.

The effect on crude oil prices is a slump as the world's third largest importer of crude oil recovers from major devastation, and has lead to the demand for oil there to fall. This fall in demand for oil has also caused a fall in the unit cost per barrel of oil with prices falling just below US$100.

Although the cost per barrel of oil might be falling currently, one can expect it to rise as the Japanese economy begins be recover to its pre-earthquake nature. World prices of oil will also continue to rise as upheaval in eastern economies of the world, particularly the oil produces such as Egypt, Iran, and Libya continues

In the immediate short term, Japan may have to relieve the use of some of its reactors which supply 34.5% of energy demand, and increase imports of crude oil. This increase in imports will result in increase demand for oil along with increase prices. Oil prices may increase in the vicinity of US$120-125 per barrel.

Another strong effect of Japan on the cost of oil will result from the fact Japan may have to decommission its dependency on nuclear energy if the advantages of its use of nuclear energy is out-weighed by its environmental disadvantages.

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