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Oil settles higher; Japan may boost fuel imports

The earthquake and tsunami in Japan will temporarily take pressure off of tightening global oil supplies as the world's third-largest oil consumer works to rebuild its shaken economy.
/ Source: The Associated Press

The devastating earthquake and tsunami in Japan will temporarily take pressure off of tightening global oil supplies as the world's third-largest oil consumer works to rebuild its shaken economy, energy analysts said Monday.

But the disaster won't curb its energy appetite for long. Analysts say Japan will likely boost imports of coal, natural gas, diesel and other refined fuels in coming weeks.

"Demand for petroleum products is going to soar," analyst and trader Stephen Schork said.

Benchmark West Texas Intermediate for April delivery added 3 cents to settle at $101.19 per barrel on the New York Mercantile Exchange. It dropped below $99 earlier in the session. In London Brent crude lost 17 cents to settle at $113.67 on the ICE Futures exchange.

Oil prices had been surging in recent weeks because of events 6,500 miles away from Japan, in North Africa. Unrest in Libya forced that country to shut down its oil fields, which had been producing about 1.6 million barrels of crude per day. The squeeze on world supplies and concern that uprisings could spread across the Middle East helped push oil prices about 24 percent higher in the past few weeks. Gasoline pump prices in the U.S. followed oil sharply higher and are still the most expensive ever for this time of year.

Friday's earthquake and tsunami in Japan pulled markets in the opposite direction. Japan imports and consumes more than 4 million barrels of oil per day. Analysts say at least some of that will be reduced as steel plants, auto manufacturers and three of five major oil refineries temporarily shut down.

Some parts of northeastern Japan are still without power, and authorities are trying to stabilize damaged nuclear plants that have been taken off-line.

Japan has increasingly relied on nuclear power as it focused on weaning itself off of petroleum, like other industrialized nations. Of the total 22.3 quadrillion Btu Japan consumed in 2008, 11 percent was generated by nuclear power plants. The U.S. consumed more than four times as much power, about 8 percent of it from nuclear energy.

Analysts think Japan will compensate for the shutdown of its nuclear reactors by relying more heavily on traditional fossil fuels.

It can choose from a variety of sources. Most of Japan's energy is produced by power plants fired by coal, most of it from Australia. It burned 37,500 tons of coal in 2009. Japan also consumed 3.3 trillion cubic feet of liquefied natural gas that year, imported mainly from Indonesia, Malaysia and Australia.

Japan also operates natural gas-burning generators and a number of aging, oil-fired plants that can be cranked up during peak times. The Japanese may favor using more oil instead of natural gas in the short term, according to Michael Lynch, president of Strategic Energy & Economic Research. Lynch said there are more tankers available to deliver crude than LNG and more dedicated facilities in Japan that can accept oil imports.

"Oil is much easier to import," Lynch said. He added that Japan could boost crude imports by about 300,000 barrels per day while its energy infrastructure is hampered by the loss of nuclear power.

Japan's trade minister said Monday that the government will release enough oil from the country's reserves to cover three days of demand, according to Platts, the energy information arm of McGraw-Hill Cos.

Japan imports most of its oil from Saudi Arabia and the United Arab Emirates. Analysts say Japan will try to tap those sources for more oil, and it will look to the U.S. and India for more refined fuels like diesel.

"The U.S. still has a surplus of both gasoline and distillate supplies with which to meet any such upswing in export activity," energy consultant Jim Ritterbusch said.

Natural gas for April delivery gained 2.5 cents to settle at $3.914 per 1,000 cubic feet. Earlier in the day, it climbed to the highest level in a month at $4.053.

Meanwhile gasoline pump prices in the U.S. rose on Monday for the 27th straight day, to a national average of $3.56 per gallon, according to AAA, Wright Express and Oil Price Information Service. A gallon of regular has increased by 43 cents in the past month and 76.9 cents since a year ago.

In other Nymex trading for April contracts, heating oil added 3.48 cents to settle at $3.0638 per gallon and gasoline futures lost 2.74 cents to settle at $2.9603 per gallon.