Oil settles lower for fourth day after Japan quake

AP News
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Posted: Mar 11, 2011 4:39 PM
Oil settles lower for fourth day after Japan quake

The recent surge in oil prices skidded to a halt this week as economists raised concerns about weakening world demand, and a massive tsunami struck one of the world's biggest oil importers.

Japan is the third-largest oil importer in the world, and it's unclear how much its economy will be affected by Friday's disaster. Analysts said it's likely Japan will consume less oil after some refineries shut down.

Benchmark West Texas Intermediate for April delivery lost $1.54 to settle at $101.16 per barrel on the New York Mercantile Exchange. Prices fell as low as $99.01 per barrel at one point.

The tsunami that ravaged Japan hit the east coast of the country with a 23-foot high wall of water, sweeping away ships, cars and homes. It was unleashed by a magnitude-8.9 offshore quake that was followed for hours by more than 50 aftershocks. Hundreds are believed dead in the coastal city of Sendai.

"Our initial assessment indicates that there has already been enormous damage," Chief Cabinet Secretary Yukio Edano said.

A large fire erupted at the Cosmo oil refinery in the city of Ichihara and burned out of control with 100-foot flames leaping into the sky. Other refineries and power plants were shut down as a precaution.

Exxon Mobil Corp. suspended operations at the TonenGeneral Sekiyu Kawasaki Refinery, which the company partially owns, though it doesn't appear to have suffered any damage. TonenGeneral refines 296,000 barrels per day of crude. Royal Dutch Shell also reported no damages to its refineries in Japan or at any of the 3,900 Showa Shell-branded stations in the country.

Tesoro Corp. said its refineries in Hawaii and Alaska were safe, though a few retail stations in Hawaii were closed as a precaution. Halliburton Co. said all of its employees working in the region are OK.

Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates, said the tsunami will likely depress oil demand as Japan's economy picks up the pieces, though it's hard to say for how long. Some of Japan's nuclear power plants also may have been damaged, and the country could be forced to import more oil and natural gas if those plants are down for long.

That pushed up natural gas prices. The April natural gas contract rose 5.9 cents to settle at $3.889 per 1,000 cubic feet on the Nymex.

Oil prices had been climbing since the middle of February as a wave of pro-reform protests marched across North Africa and the Middle East, ousting leaders in Egypt and Tunisia and cutting off most of Libya's exports. Oil traders fretted this week about unrest spreading to Saudi Arabia. But rallies planned in that country for Friday appeared to draw small crowds, and none in the capital. Saudi rulers deployed hundreds of police and blocked roads to discourage the demonstrators. Officials also beefed up security around the country's oil fields.

"This is a market that's ripe for a correction," analyst and trader Stephen Schork said. "Everyone was waiting for this 'Day of Rage'" in Saudi Arabia, "but at this point, there aren't any headlines" to suggest that the country's oil fields are in danger.

In Washington, President Obama said he'd consider tapping the country's Strategic Petroleum Reserve to cool off prices, but right now it doesn't appear that the U.S. is suffering from a lack of supply. The Energy Information Administration said that excluding the strategic reserve, U.S. storage facilities added another 2.5 million barrels of oil last week. They're also holding more than they did a year ago.

Oil prices were lower on Friday for the fourth straight day. The oil rally may have cooled this week, but it could turn right back around, Ritterbusch added.

"Libya is still a big deal," he said. As long as the country has no clear leader, world supplies will continue to be under increased pressure. "That's going to continue to drive oil prices."

Meanwhile gasoline prices in the U.S. continue to rise. The national average for regular climbed above $3.54 per gallon on Friday. That's 42.7 cents higher than a month ago and 76.6 cents more than the same time last year, according to AAA, Wright Express and Oil Price Information Service.

In other Nymex trading for April contracts, heating oil dropped 1.59 cents to settle at $3.029 per gallon and gasoline futures lost 3.19 cents to settle at $2.9877 per gallon.

In London, Brent crude gave up $1.59 to settle at $113.84 per barrel.

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Associated Press Writer Malcolm Foster in Tokyo contributed to this story.