Japan Earthquake Puts Upward Pressure on US Petrol Prices
Japan’s earthquake has disrupted refining capacity and boosted demand for refined fuels, raising the prospect of higher petrol prices in the US.
The earthquake and tsunami that struck Japan last week have forced shutdowns at several of the country’s oil refineries, reducing domestic fuel production and prompting concerns over global fuel supply. While crude oil prices initially dipped, analysts now warn that US petrol prices could rise as a direct result of the disruption to Japan’s refining sector.
Japan’s refining capacity and global fuel supply
Japan consumes about 4.4 million barrels of oil daily, most of it imported. The earthquake has knocked out a portion of the country’s refining capacity, meaning Japan is less able to supply its own market with petrol, diesel and other refined products. This shortfall is expected to be made up by increased imports from other regions, including the US. As a result, American refineries may redirect more output towards Japan, tightening supply at home.
The immediate effect has been a drop in Japan’s oil demand due to economic disruption. That helped keep crude prices steady, with US benchmark crude settling at $101.19 per barrel on Monday. But the longer-term picture is different. As Japan begins to rebuild, its demand for refined fuels and liquefied natural gas is expected to rise sharply. According to Jonathan Stern of the Oxford Institute for Energy Studies, Japan may import up to 10 million metric tons more LNG than previously forecast this year.
Impact on US petrol prices
US petrol prices have already been climbing, with the national average for regular at $3.47 per gallon according to AAA. California is seeing some of the highest prices, with averages above $4 per gallon. If American refiners send more gasoline and diesel to Japan, domestic supply could tighten further, putting upward pressure on prices at the pump. This comes on top of existing concerns about fuel costs, which have been rising since early 2011.
The shutdown of several Japanese nuclear power plants adds to the strain. With less nuclear-generated electricity available, Japan will need to burn more oil and gas to keep the lights on. That shift is likely to further increase demand for refined fuels and LNG imports, with knock-on effects for the global market.
Related disruptions and previous price surges
The impact of the Japanese earthquake on fuel prices comes amid other supply concerns. Recent events in Libya and the Middle East have already contributed to volatility in oil markets. US drivers have faced record-high springtime petrol prices before, as seen in previous years when geopolitical events disrupted supply chains. For context, oil peaked at $145 a barrel in July 2008. More on recent price surges can be found inAlert Gas Prices Reach Highest Springtime Level Ever.
As Japan’s recovery gathers pace, US motorists should prepare for the possibility of further price increases at the pump, driven by international demand for refined fuels and ongoing supply constraints.
