The earthquake had a more bullish impact on the oil products markets, sending them swiftly higher, said Ken Hasegawa, a trader at Newedge Japan in Tokyo.
Oil-product market structures were strengthening due to concerns that shutdowns at Japanese refiners will narrow the demand-supply balance of petroleum products in the regional market and force the country to raise products imports.
In the fuel oil market, traders recalled a surge in Japan’s import of the product–used for power generation–following a 2007 earthquake as several nuclear power plants went offline.
Japan has generally been reducing purchases of fuel oil for power generation, depending increasingly on cleaner-burning natural gas, but shutdowns of nuclear power plants due to the quake may force the country to import higher volumes of other fossil fuels, including fuel oil, for power generation, traders said.
According to news reports, at least two nuclear power plants on Japan’s Pacific Coast were automatically shut down after Friday’s earthquake. The country’s largest power utility, Tokyo Electric Power Co., said its nuclear power plants also stopped automatically, according to media reports. “Products are reacting higher” across the board, a second Singapore-based trader, with a Western firm, said. “The fuel oil structure is well bid.”
While it remains uncertain how long the nuclear plants and refineries will be closed, news of the earthquake quickly pushed the fuel oil market’s intermonth timespreads deeper into backwardation, reflecting expectations that prompt fuel oil demand will be higher than future demand.
The April/May timespread in 180-centistoke high-sulfur fuel oil swaps was trading at $5.75 a metric ton in backwardation, up from $4.75 a ton earlier Friday. It peaked at $6.10 a ton soon after the news of the earthquake. “The loss to Japanese production will be marginally bullish,” the second Singapore-based trader said. “Oil product spreads are moving up globally.” (DJNW/HQM)