Outright price developments were mixed yesterday as geopolitical and geoshocks continued to shape affairs. ICE Brent fell slightly at close while Nymex WTI was marginally up. The sight of 1000 Saudi/Gulf Cooperation Council (GCC) soldiers entering Bahrain on the Crown Prince's invitation gave significant pause for thought. It seems that the techniques applied to last Friday's 'day of rage' have been transported across to Saudi Arabia's island neighbour, but whether they will be a success in another country remains to be seen. Difficulties could set in if the troops remain for a protracted period and resentment against their presence builds amongst the country's Shi'ite majority. The Saudi soldiers are not the only GCC presence in the country as the UAE also sent 500 police officers. The secretary general of the GCC reiterated yesterday to Al Jazeera that 'safeguarding security and stability in one country is a collective responsibility' and gave no indication yet as to how long the troops will remain.
In Libya Gaddafi's eastward progress continues unabated, aided by his control of the air. No developments on setting up a no-fly zone were seen during yesterday's G8 foreign ministers talk despite strong lobbying from France and the Arab League. While the rebel resistance is expected to become more solid when they are defending smaller territory (they also have trained forces), it seems that a clear path is emerging. If the Gaddafi regime regains control swiftly we would expect that production will pick back up to 1 million b/d within four -five months and 1.2 million b/d by end of the year. The remaining production could be lost due to war damage and the withdrawal of (mostly) European IOCs while their E&P projects could be nationalised. There will be a substantial effect on crude flows as well, as OECD North American and European countries would probably refrain from buying Libyan production, implying a reorientation of flows towards non-OECD Asia. This would require more Caspian and West African crude to flow to Europe similar to the current situation. However, for this to happen the EU would explicitly have to decide on an embargo of imports from Libya, as crude oil purchases are not (directly) affected by current sanctions. And even then there might be some leakage/indirect purchases.
In Japan, the situation obviously got out of control. Three reactors are now in a precarious condition after suffering explosions, while the number of reactors with cooling problems increased further. Most critically, in contrast to reactors 1&3, the containment around reactor 2 might have burst after the explosion. More radiation, and at higher levels than previously recorded, has been released into the atmosphere from this development. With a change in the wind direction the situation is getting more dangerous to local population centres and more worryingly to Tokyo.
Prime Minister Naoto Kan has complained about being informed only an hour later than the media, showing that TEPCO is still exclusively in charge. He also ordered the company to keep its staff in place, as they are "the only ones" to resolve the situation. The uninvolved observer would have expected that a country with the pre-conditions as Japan would have a special force in place, which is perfectly prepared for a calamity and ready to risk lives. Most obviously this is not the case. While we do not want to act like the tabloid press, it looks now increasingly likely that the Fukushima I complex will emanate a lot more radiation and particles, and contaminate the area for years or decades. What remains to be seen is how strongly Tokyo will be affected. The Nikkei Index closed down 10.6% on the day, while oil is down by $2 per barrel at the time of writing.