Impact of Japan earthquake on energy

Last Friday, Japan was hit by a devastating earthquake, later upgraded to a Richter scale of 9.0 by Japan’s Meteorological Agency. It triggered a large-scale tsunami, causing severe damage to many coastal installations, including nuclear power stations and oil refineries. From the most recent updates, approximately 9,700 megawatts of nuclear power generation capacity has been shut down, representing about 30% of Japan’s total nuclear power generation capacity and 7% of Japan’s total power generation capacity. About 1.5mbd of oil refinery capacity has also been halted, equivalent to about one-third of Japan’s total refining capacity.

We see the impact on the energy market coming from two aspects:
Firstly, the mix of Japan’s electricity generation source will need to be rebalanced. Japan relies on nuclear power for about one-quarter of its total electricity generation, while conventional
thermal power accounts for 65% of total generation capacity. Of the 65%, coal, LNG and oil make up approximately 25%, 30% and 10% respectively. Due to high oil prices over the past few years, oil-fired power plants in Japan are used primarily as extra capacity to meet peak demand.
With explosions in some nuclear plants and the subsequent radioactive scares, it’s very likely that a significant amount of nuclear power generation capacity will remain shut for a long time. Given the existing mix, the supply shortfall from nuclear will have to be filled by coal, LNG and fuel oil. The rebalance should be supportive to these substitutive energy sources. That said, there is likely to be some short term demand drop due to general slow-down of economic
activities and as short-term imports dip due to damaged infrastructure.

Secondly, the shut-down of several oil refineries will affect refining margins, product cracks and Japan’s oil import/ xport balance. The damage to Cosmo Oil’s 220kbd refinery at Chiba seems severe as fires continued there over the weekend, which could see the refinery remain out of operation for a long time. Several other refineries have also been reported as shut. These will support refinery margins and product cracks in general. However, we don’t see significant
upside in the margin and cracks, given abundant spare capacity in the global refining industry.

The refinery shut-down also affects Japan’s import/export balance. While Japan imports
all of its crude oil, it typically exports around 200kbd gasoil/diesel and is broadly balanced on gasoline. It is also shown as net short in fuel oil during 2010, as the economy recovered (see graph). Within this context, the refinery shutdown is likely to cause more imports on gasoline and fuel oil and less export of middle distillates. The latest weekly Japanese oil inventories show gasoline and distillate stocks both at around historical seasonal lows. Therefore, it must rely on
imports/exports to balance the change in domestic supply. We’ve also analysed the oil product demand after the Kobe earthquake in 1995; the impact on oil demand from the earthquake
was mixed and short-term. We expect coal, LNG and fuel oil, as substitutes for nuclear power generation, to be supported by the loss of nuclear power generation capacity. Refinery shutdowns in Japan are likely to boost refining margins and product cracks in general,
and to have a knock-on impact on Japan’s oil product balance. That said, there is likely to be some short-term demand drop due to a general slow-down in economic activity and a
short-term import dip due to damaged infrastructure.

Crude Oil Refined Product Inventory Levels Remain Very High

The latest CFTC data shows that the net long non-commercial WTI NYMEX position has declined by 1,288K barrels w/w. This decline is due to long positions declining by 11,016 contracts, while shorts dropped 9,728 contracts.

However, speculative interest in the crude oil market remains high despite the recent sell-off. The net speculative position as a percentage of open interest registered 10.1% last week. This is marginally lower than the previous week’s 10.4%. However, the latest CFTC data captures the speculative positions up to Tuesday last week, and the data doesn’t reflect the sell-off in commodity prices since Wednesday last week. While we believe the majority of weak long positions have liquidated, the crude market still has weak underlying fundamentals. US refineries are cutting back on utilization levels (currently at a low 78.4%) but refined product inventory levels remain very high (with gasoline inventories showing a sharp rise last week
despite declining refinery activity).

OPEC production continues to rise, in defiance of their official quota (of 24.845m barrels per day) and despite the large overhang of crude inventory. OPEC produced 28.9m barrels per day in December — up from 28.9m in November last year. Despite the excess crude supply, we believe oil demand will continue to grow this year; we believe the market will slowly normalise in 2010 and 2011. A market in recovery is volatile, and volatility should therefore remain a key feature for oil this year.

While the US dollar is important, we prefer to look at the equity market for direction in the crude oil market right now. Since November US equities have had a higher correlation with WTI front-month prices than the dollar. Stabilisation of equity prices should signal support for crude oil returning. After three days of heavy selling in the equity market on the back of regulatory concerns, rather than very weak economic data in the US, this could indicate imminent support. Higher equity prices should also coincide with a decline in the VIX index (which measures volatility of the S&P index). This signals the return of healthier risk appetite.

Oil fundamentals calling for a correction

Front-month WTI crude oil broke above the $80/bbl resistance level, climbing to $82/bbl in New York last week, despite gains in both API and DOE inventories and increased US crude and
distillate fuel production levels. After the US API reported a 3,847K barrel increase in crude oil inventories on Tuesday, the next day DOE inventory data also showed a 1,312K build in crude stockpiles. Distillate inventories declined 784K bbls. Although gasoline stockpiles contracted, most of the investor associate the 2,200K run on DOE gasoline stockpiles with decreased refinery usage (utilization rates are down 1 percentage point, to 81%).

The recent build on crude inventories is a function of decline in refinery runs and seasonal demand weakness for gasoline. The build in inventories could imply that a growing speculative premium is driving crude oil prices. According to the latest CFTC data on NYMEX crude oil, speculative net long positions have increased by 21,191 contracts, with the number of bullish investors expanding 3.2% w/w.

Base on the report I read they believe an oil price around $71/bbl-$73/bbl would be more consistent with current underlying fundamentals and they think that crude oil above $80/bbl is unsustainable, given weak demand.

Oil Inventory Drop As Improvement In US Crude Oil Demand.

Base on US crude oil report front-month WTI crude oil fell from USD71.50/bbl to USD68.90/bbl in New York trade yesterday despite a contraction in both DOE and US API crude oil inventories. DOE inventory data, released yesterday, showed a 978K barrel contraction in stockpiles for the week ended 2 October while Tuesday’s API data showed a 254K barrel contraction in US crude inventory levels for the same period.

















Ordinarily this data should be positive for crude oil prices, particularly as last week’s run on US crude oil inventories, coupled with a 79K increase in API crude imports, signals an improvement in US crude oil demand.

However the overhang of inventory is still so large, that the market remains focused on technical patterns and the currency markets, rather than on the inventory statistics. A net 3,051K barrel build on US API crude oil inventories since 11 September. Although we have seen a 56K barrel run on DOE inventories over the same period, inventory levels at 337,426K are still some 13,420K higher than the 5-year average.

This should continue to weigh on prices and sentiment, and cap the upside. Keeping with this theme, even though the EIA has increased its global crude oil demand forecast by 0.2mbpd to 84.7mbpd - due to sustained Chinese economic growth - it has done so without changing its crude oil price forecasts, sighting large global crude oil inventory levels. It will be interesting to see at what point this cap to prices is removed.

Weekly Crude Oil Report From DGCX

WTI oil prices retested USD72 toward the end of last week, after approaching USD68 on Monday 14 September. Prices may continue to face resistance at USD75 over the near-term as the fundamentals do not yet support a strong move higher. According to Energy Information Administration, U.S. crude oil stocks have been declining but remained above 22 days of supply as of 11 September. With the supply – demand balance still weak, oil may continue to trade on improving economic conditions and changes in the U.S. dollar.

However, current prices levels already may account for the expected uptick in energy demand following an end to the economic contraction. A move toward USD80 therefore seems unlikely over the next few weeks. Prices may remain locked in a range this week, reaching for USD75 if the bullish economic news flow continues or falling closer to USD65 if economic uncertainty resurfaces.

Crude Oil Weekly Report From DGCX

Report From




WTI oil prices remain responsive to movements in the U.S. dollar and the equity markets but supply-demand conditions may come back into the foreground over the next few weeks. The inventory overhang continues to present downside risk to prices even as demand fundamentals improve.
According to the U.S. Department of Energy, U.S. crude oil inventories stood at 343.4 million barrels for the week of 28 August, 13.0% above year-ago levels. With excess supplies and no clear direction from technical signals, investors have turned more cautious on the oil market. The 1 September CFTC Commitment of Traders report for Nymex light, sweet crude oil showed that the non-commercial net long position declined 8.8% week-on-week to stand at 126,083 contracts.

If investor attitudes converge with the market’s fundamentals, oil prices could break below USD65 this week. Otherwise, more sideways trading can be expected with prices hovering between USD66 and USD71.

Base on the news look like Oil company share price likely to move sideways and in short term did not have any bounds up momentum.

Crude Oil Finish The Week Close To USD73

After nearing the USD75 mark at the beginning of last week, WTI oil succumbed to some profit-taking and fell below USD70 on an intraday basis on Thursday 27 August. Prices then recovered to finish the week close to USD73. Oscillating prices may remain the key dynamic in the oil market over the coming weeks as demand improves from a low base and economic conditions remain at an inflection point.

Last week, the premium for WTI over dated Brent averaged USD0.48 on a daily basis compared to an average daily discount of USD1.88 over the prior 30 trading sessions. This suggests that the fundamentals in the U.S. market are strengthening. In the short to medium term, investor sentiment regarding the demand outlook may be the determining factor, either pushing prices above USD75 or pressuring prices lower back into the USD65 - USD70 range.

Back to Malaysia today the RON95 petrol which will replace RON97 will be retailed at RM1.80 per liter, said Domestic Trade, Cooperative and Consumerism Minister Datuk Seri Ismail Sabri Yaakob.RON97 had been upgraded as a premium petrol with a price of RM2.05 per liter.

Big difference between API and DOE data, Oil Price May Speculated

For the past three weeks, DOE crude oil inventories have seen a net cumulative increase of 944K barrels, which stood at 9,341K (if we exclude yesterday’s significant 8,397K barrel decrease in crude oil inventories). Meanwhile, API crude inventories realized a cumulative 10,068K barrel decline. This discrepancy has caused uncertainty about the actual level of US crude oil inventories.

Base on the report from US, they believe this could serve to draw investors’ attention from market fundamentals, towards other economic barometers (like equity markets) for short-term guidance. Yesterday’s DOE data showed that gasoline inventories had contracted 2,177K barrels, expanding the cumulative decline in US gasoline inventories to 5,637K barrels. This signals improving US retail demand for crude oil. However, with US distillate fuel stocks gaining another 1,529K barrels last week, concerns about weak industrial crude oil demand could weigh on crude oil contract prices.




Furthermore, the US Gulf coast refinery crack spread increased to USD8.638/bbl, which saw refinery utilization increase one percentage point — to 83.2% last week. This increases the probability of increased US refined products output in the week ahead, which could also weigh on crude oil prices, given currently weak US industrial crude oil demand.

Volatile trading can be expected and oil prices could test USD65 this week

Report from Weekly Communities Market View
Last week WTI crude oil prices were buffeted around by contradicting economic releases. After signs of improvement in U.S. industrial production and European GDP, weak U.S. consumer confidence figures released on Friday reminded market participants that demand is still frail and pushed prices below USD68.

The recession appears to be ending in many parts of the world, which should eventually motivate a rebound in energy demand. The International Energy Agency increased its forecast for 2009 global oil demand by 190 kb/d to 83.94 mb/d due to the unexpected strength in Asia.

However, oil demand is still forecast to fall 2.6% this year. Prices continue to take cues from changes in economic fundamentals rather than the still-bearish supply-demand picture. As a result, volatile trading can be expected and oil prices could test USD65 this week.

Volatile Crude Oil Trading Likely On Months Of August

Last week’s price swings may be a good indication of the volatile trading we are likely to see in the crude oil market over the coming weeks. Although demand for petroleum products has shown slight signs of improvement, prices above USD70 do not seem to reflect fundamental realities. Spare capacity in OPEC countries is at elevated levels and demand for crude oil is projected to fall by 2.5 mbd this year, according to the IEA. Strong equity markets and a soft dollar could keep this price level in sight, however.



















Over the medium term, the buildup in Inventories will need to be chiseled away before recent gains are supported by fundamentals. In terms of dead weight tonnages, tankers floating at sea being used as oil storage are near record highs, according to the available data that begins in 1982. A dramatic shift in investor sentiment coupled with weak underlying fundamentals could force WTI oil prices back toward USD50. In the absence of this shift, prices could remain in the USD60 - USD70 range.

Crude oil prices are under pressure will affected KNM share

Crude oil prices are under pressure, driven down by a combination of factors:

1. The first is what we believe to be a bearish API inventory reading.
2. The second is weaker US equity markets and the stronger dollar.
3. The third is the widely anticipated CFTC decisions regarding speculative positions in US commodity futures market.

A decision by the CFTC is expected within the next few weeks, which might see the size of speculative positions in commodity markets which investment funds may hold be restricted. API crude oil inventories, for the week ending 24 July, increased 4,067K barrels despite a 1% fall in refinery utilization to 83%. Declining refinery utilization and a rise in crude inventory signal weak crude oil demand in the US.

Although US gasoline inventories fell marginally, by 47K barrels, distillate fuel inventories continues to grow, rising 116K. This is a clear signal that US industrial demand for energy remains depressed. Surprisingly, US API data showed crude oil imports increased 199K barrels last week, which we believe supported front-month ICE Brent crude oil.
























If any outcome of Crude oil price speculated KNM share price will affected but due to still on going project I think KNM will have a strong support on RM0.70 level, drop below this level will be unlikely. Base on the chart, KNM price may drop below RM0.80 above RM0.70 before bound up so for me below RM0.80 is a good entry point.

Gold price already affected by stronger US dollar and I think soon crude oil price may drop due to the same reason. Any how share price also need rest before next bull run again.

Crude oil pricescould break above USD70 in a broader rally in the equity markets.

Crude oil prices barreled above USD65 last week and jumped above USD68 on Friday 24 July. With a weaker dollar expected this week, prices are likely to remain above USD65 and could break above USD70 in a broader rally in the equity markets.

Oil continues to trade on expectations of a global economic recovery rather than the current fundamentals. Oil inventories in the United States have declined by nearly 19 million barrels since early June but are still at elevated levels according to U.S. Energy Department data. On the downside, ongoing discussions by U.S. regulators about limiting on commercial interests in the commodity markets, including oil, have the potential to precipitate a widespread investor panic about such pending regulatory action, which could cause a sharp price decline. If investors preemptively curtail their positions, oil price could begin to reflect the weak near-term fundamentals.

This probably will not happen in the near term. Meanwhile investors remain interested in oil, keeping prices firm.

Crude Oil Price May Have Been Speculated

Crude oil price may have been speculated base on a report from US the WTI crude oil historical ATM implied volatility has fallen from a peak at 109% in December 2008, to 47% this week. It may hover around these levels in the short to medium-term as the summer lull continues. With lower volatility the incentive to raise production levels have risen. This could maintain pressure on crude oil prices given the still weak macroeconomic fundamentals.

With lower crude oil volatility, producers’ total marginal cost of producing the extra barrel of oil could decrease. Marginal cost is composed of direct marginal cost and an opportunity cost of producing now rather then later. With lower volatility it is believe the opportunity cost also decline. But apart from lower volatility, a continued drawdown of crude oil inventory in the US might add to the incentive to produce more crude oil. US gulf coast crack spread has risen from $3.142/bbl on July 13th to $6.785/bbl yesterday,creating further incentive for increased refinery production. This should result in a drawdown of crude oil inventories. Over the past few weeks we have seen a shift from a buildup in crude oil inventory in the US to a build-up in refined product inventory.



However, even the decline in crude oil inventory is not an indication of a rise in demand. US refined product demand remains weak and inventories high. As a result we still see the upside of crude oil prices limited above USD69/bbl, so need to understand here is crude oil inventory low may because it keep in the refinery but most of the report only written on crude oil inventory is low to speculated the oil price.

Be careful when you what to invest in oil base service company in Bursa Malaysia because oil price may drop when all the refinery is in high inventories.

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