The unforeseen events of this month have been challenging for the global energy and resources markets, as investors struggle to make sense of ongoing political tension in the Middle East, and now the natural disasters in Japan.
As a result of political unrest in the Middle East and supply disruption in Libya, West Texas Intermediate (WTI) and other crude oil spots have risen nearly $15 per barrel according to data from the Energy Information Administration (EIA). This jump has brought crude prices to their highest points since 2008, prompting the EIA to raise its price forecast for 2011 up to $105 per barrel, a full $14 dollars higher than previous estimates.
Energy markets have also been impacted by the recent crisis in Japan. With nearly 20% of Japan’s power capacity shut off, analysts are expecting a drop in demand for crude oil coupled with a potential spike in demand for refined products. Many foresee an uptick in demand for liquefied natural gas (LNG) and fuel oil as replacements for lost nuclear power generation. Shell recently confirmed it had begun diverting shipments of LNG to Tokyo in the wake of the explosions. As a result, this may lead to higher prices in Europe.
“Japan will change mid-term world energy scenarios,” acknowledged the United Nation’s top climate official, Christina Figueres in a response to the situation in Japan.
Certainly the risks surrounding nuclear power generation have been magnified on the world stage, potentially derailing investment into new plants. As a result, wind power and natural gas may become more attractive power sources. We will be closely watching as supply and demand patterns adapt to the current situation and as events continue to unfold throughout the globe.