The earthquake and tsunami in Japan took some steam out of the rally in oil prices by reducing the country's oil imports. That won't last long.
Japan consumes about 4.4 million barrels of oil per day, most of it imported. Only the U.S. and China consume more. With steel plants, auto manufacturers and three of the country's five major oil refineries temporarily shut down, the use of oil and refined products has dropped.
Analysts said Monday that once Japan begins to rebuild, it will boost imports of coal, natural gas, diesel and other refined fuels. And it will need more than before to compensate for the loss of part of its nuclear power industry.
"Demand for petroleum products is going to soar," said analyst and trader Stephen Schork.
The disruption to imports has temporarily eased concerns about the effects that unrest in the Middle East and North Africa is having on global oil supplies. Before the quake hit, oil prices had risen about 24 percent in three weeks. Libya has shut down 1.6 million barrels of daily oil production. The market was also concerned about possible disruptions in Saudi Arabia, which produces about 8.4 million barrels per day.
Benchmark West Texas Intermediate for April delivery added 3 cents Monday 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. Both contracts fell sharply on Friday, the day of the quake.
Some parts of northeastern Japan are still without power. Of the greatest concern, authorities are trying to stabilize damaged nuclear plants that have been taken off-line.
Japan has increasingly relied on nuclear power as it tried to wean itself off oil, like other industrialized nations. Of the total 22.3 quadrillion British thermal units 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 10 nuclear reactors by relying more heavily on traditional fossil fuels.
It can choose from a variety of sources. The majority 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 when demand for energy peaks. The Japanese may favor oil over natural gas in the short term, according to Michael Lynch, president of Strategic Energy & Economic Research. He said there are more tankers available to deliver crude than LNG and more dedicated facilities in Japan that can accept oil imports.
Lynch said Japan could boost crude imports by about 300,000 barrels per day as it makes up for 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.
Analysts say Japan will look to import more oil from Saudi Arabia and the United Arab Emirates, its top two suppliers. It may also seek more refined fuels like diesel from the U.S. and India.
"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.