Commodities moved higher in European session as investors gauged the impacts of radiation leak in Japan. Radiation emitted from crippled nuclear plants has been found in ocean and agricultural products. The US, being the first country t block Japanese produce, said it will stop imports of mile, fruit and vegetables from areas of Japan near the nuclear plan. According to the government, the damage from the earthquake and tsunami on March 11 may reach 25 trillion yen, the costliest among natural disasters on record.
Indeed, we retain the view that the situation in Japan is supportive for oil prices in the medium-term, if not in the long-term. Japan will release an additional 22 days' worth of crude oil from reserves to ease shortages in the northern. This represents around 58.1 mmb of reserves, following the release of around 7.92 mmb from mandatory stockpiles last week. Concerning refining capacities, news reported that half of the refineries that were disrupted after the earthquake may resume operations in coming weeks. According to IEA's report on March 15, 6 refineries with a total refining capacity of 1.4M bpd, or 30% of Japan's total refining capacity, have been shut down. Reopening half of the suspended capacity means 700K bpd would remain offline for at least several months. We expect little to no gasoil exports from Japan for coming months and this would tighten the middle distillate market.
As investor await DOE/EIA's inventory report, the industry-sponsored API estimated crude oil inventory rose +0.97 mmb to 349.6 mmb while gasoline and distillate stockpiles declined -7.9 mmb to 222.3 mmb and -0.61 mmb to 155.0 mmb respectively. The market forecasts a +1.6 mmb jump in crude oil inventory but draws in both gasoline and distillate stocks.
At BOE's minutes for the March meeting, policymakers remained split on monetary policies. Concerning leaving the Bank rate at 0.5%, 3 members opposed the policy as they favored increasing interest rates. Andrew Sentence favored raising the policy rate to 1% while Martin Weale and Spencer Dale preferred a hike to 0.75%. On the asset-buying program, while the majority voted for leaving it at 200B pound, Adam Posen suggested to increase the size of the program by 50B pound to a total of 250B pound.
| Weekly change in inventory as of 18/03/10 | Change | Consensus | Previous |
| Crude oil | +1.60 mmb | +1.75 mmb | |
| Gasoline | -1.50 mmb | -4.17 mmb | |
| Distillate | -1.30 mmb | +1.14 mmb |
Comparison between API and EIA reports:
API (Mar 18) | EIA (Mar 18) | |||||
Actual | Inventory | Previous | Forecast (using API's inventory level) | Inventory | ||
Crude oil | +0.97 mmb | 349.59 mmb | +0.91 mmb | -1.05mmb | 350 mmb | |
Gasoline | -7.90 mmb | 222.35 mmb | -0.46 mmb | -2.69 mmb | 222 mmb | |
Distillate | -0.61 mmb | 155.03 mmb | +0.53 mmb | -1.32 mmb | 155 mmb |
API collects stockpile information on a voluntary basis from operators of refineries, 76% of the time, using data in the past 4 years.
Source: Bloomberg, API, EIA
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