Crude Oil Underpinned Despite Weakness as the Only Alternative to Nuclear Power

By: Seven_Days_Ahead

The recent rally in oil markets, driven by unrest in the Arab world, has paused in the aftermath of the Japanese natural disaster and possible and impending nuclear disaster. Traders are trying to assess the implications for energy demand as the world’s 3rd largest economy looks set to endure a recession.

The Technical Trader’s view:

The Macro Trader’s view:
The recent rally in oil markets, driven by unrest in the Arab world, has paused in the aftermath of the Japanese natural disaster and possible and impending nuclear disaster. Traders are trying to assess the implications for energy demand as the world’s 3rd largest economy looks set to endure a recession.

An initial reaction might have been that oil prices would continue to push higher. The unrest in Libya has turned to virtual civil war, meaning that her exports of oil have dried up, and although OPEC has pledged to make good the shortfall, it is by no means clear that the unrest will not spread to other Arab oil exporting states.
Bahrain a regional financial hub and base for US forces, has had to invite in troops from neighbouring states to help suppress a popular uprising in a country that many considered more tolerant than most of her neighbours.

Moreover, as Countries around the world review their nuclear energy policies following the still evolving drama in Japan with:

• China halting further construction of nuclear plant,
• Germany closing down seven older nuclear power stations, and
• an EU energy official saying the EU should consider a nuclear free energy policy,

the longer-term outlook for oil prices must surely be higher. Although governments are looking at other “green” alternatives, nuclear energy is the only viable alternative deployable on a large scale, to oil-fired electricity generation.

So, while the immediate outlook for Japan’s economic prospects is negative, traders will soon look beyond that stage if popular opinion forces governments around the world to drop nuclear power as a main stream energy generating source.

And while the oil price currently marks time on growth fears, the longer term issue is what other means of energy generation is available to allow western governments to move away from their dependence on oil, which many believe won’t be able to match demand as emerging economies rush to join the developed world.

We judge the oil price is in a long-term bull market and new all-time highs are likely. This was our view before the crisis in Japan struck, since China and India are still growing and so too is their demand for energy, now as the world holds its breath and prays for a miracle at Japan’s stricken nuclear facilities, the current oil price may soon look cheap.

Mark Sturdy
John Lewis

Seven Days Ahead
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Mark Sturdy, John Lewis & Philip Allwright, write exclusively for Seven Days Ahead a regulated financial advisor selling professional-level techni44cal and macro analysis and high-performing trade recommendations with detailed risk control for banks, hedge funds, and expert private investors around the world. Check out our subscriptions.

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