(Japanese earthquake, oil prices story updated for Thursday trading, refinery and LNG market commentary

NEW YORK ( TheStreet) -- Crude oil prices declined on Friday as the 8.9 magnitude earthquake in Japan sent oil refineries in the third-largest oil consuming nation offline, and as Saudi Arabia's "Day of Rage" appeared to be a bigger headline event than actual protest movement.

The Japanese quake, the worst earthquake in Japan in 140 years, hit the Japanese oil refining market hard, with storage tanks set ablaze and refinery operations shuttered in some cases.

Japanese oil refining capacity were offline on Friday. U.S. oil refiner stocks soared in trading on Friday morning. The energy markets were also trying to digest the impact of the hit to Japan's power infrastructure with nuclear plants offline and need for incremental liquified natural gas-produced energy.

Nymex crude oil futures and WTI spot oil prices were down by 1.5% on Friday, almost twice the decline in Brent crude. Nymex oil futures and WTI spot were hovering above the $101 mark on Friday afternoon, after having dipped below the $100 mark in the morning. Brent crude was down by less than 1% and was recently trading at $113.68.

Japan consumes more than 4.4 million barrels, according to the International Energy Agency. The IEA said on Friday in a statement that it had not received any indication from Japan that it required assistance managing its oil supply in the wake of the earthquake.

Friday was the second consecutive day that an Asian markets event trigger concerns about global demand for oil. On Thursday, the larger macro trigger, when China reported a trade deficit at its highest level in seven years, sent oil prices and energy stocks into a tailspin. The Japanese earthquake -- Japan is the third-largest oil consumer in the world -- contributed to fears of a global demand stall, too. However, equities and the energy sector rebounded on Friday.

The trade data from China and Japanese quake also provide a counterpoint to the continuing headlines from the Middle East, which have sent oil prices higher.

A Cosmo Oil refinery 40 kilometers east of Tokyo was on fire on Friday, according to a Bloomberg report. JX Nippon Oil & Energy Corp. said it shut refineries in the Sendai -- where the quake was centered -- and in Kashima and Negishi. In addition to oil refineries in Japan, nuclear power operations were hit hard in Japan, with a significant percentage of Japan's nuclear energy capabilities taken offline. There were fears of small radiation leaks at a nuclear reactor where a cooling system was damaged.

PFG Best market strategist Phil Flynn described the market impact of the Japanese earthquake to clients on Friday morning, writing, "Oil and food prices are falling as the markets will go through their three stages of grief, demand destruction, assessment and then rebuilding. ... Early market reactions are predictable. Oil prices are plunging as refiners in the world's number three oil consuming nation shut down in the aftermath of the quake."

The equity markets rebounded from early losses on Friday, with the major market indexes up in the afternoon. Energy stocks rebounded from a big losing day on Thursday and were up 1% on Friday afternoon.

The surge in refining stocks was led by CVR Energy ( CVI - Get Report) and Western Refining ( WNR) up 9%. Tesoro ( TSO) was up 7% and Valero Energy ( VLO - Get Report) was up 5% on Friday afternoon.

U.S. refining stocks are a volatile trading group and tend to move up and down based on moves in the crack spread. While the Japanese oil refineries being taken offline was a big headline -- and a signal for global oil demand assumptions being ratcheted down -- the U.S. refiner rally on Friday may be more closely related to the typical crack spread-triggered trading. Earlier this week, the crack spreads had contracted, leading to some big losses for refining stocks as some bet that the a typical levels in the crack spreads were finally set for a major correction. Yet without the crack spreads contracting for a meaningful period of time, the volatile trading will continue in these stocks, Sam Margolin, analyst at Dahlman Rose said.

The link between the Japanese oil refineries being offline and the U.S. refiners was limited, the Dahlman Rose analyst said. Margolin noted that Tesoro has a Hawaiian plant that could theoretically benefit from Japanese refineries being down, and its financial performance, not the best among Tesoro operations, could be material impacted by any short term opportunity. However, Margolin did not read the Japanese earthquake as a meaningful event for the U.S. refining industry as a whole.

U.S. exploration and production companies that have rallied extensively were among the biggest energy sector losers on Thursday, but on Friday the U.S. natural gas-heavy stocks were rising, with gains doubling the energy sector return of 1%.

Chesapeake Energy ( CHK - Get Report), Devon Resources ( DVN), Southwestern Energy ( SWN), EOG Resources ( EOG) and Range Resources ( RRC) were all up in the range of 2% to 3%.

Zach Allen, energy market consultant at Pan EurAsian Enterprises, said that the U.S. natural gas companies weren't likely to benefit from the Japanese quake. The energy markets consultant said that Japan will likely need five additional cargos of liquefied natural gas per month, or a 10% spike in LNG use as nuclear power remains offline - Japan currently consumes 3 million to 3.5 million tons of natural has monthly. However, he said the only speculative case to be made would be for a diversion of U.S. LNG earmarked for Sempra Energy's Costa Azul LNG hub, but the LNG export/import market dynamics did not argue in favor of a U.S. natural gas impact from the Japanese quake.

Japan is the world's largest importer of LNG. Japanese utilities have recently expressed interest in developing a supply source from U.S. LNG hubs, but as part of a long-term strategy to diversify LNG stocks and tap cheap U.S. natural gas prices.

"I think it's a non-event for U.S. companies," Allen said. The consultant explained that the timing doesn't work for re-export specifically. It takes weeks to get LNG to port and then a month to ship from the Gulf of Mexico to Japan, and he doesn't expect this crisis in Japan to last more than a month or two.

On Friday, shares of Cheniere Energy Partners LNG ( CQP - Get Report), one of the few companies in the U.S. focused on developing a Gulf of Mexico based LNG export hub, were up more than 3%. On Friday, Louisiana Senator Mary L. Landrieu, D-La. vowed to intensify her push for U.S. Department of Energy approval of a liquefied natural gas (LNG) export facility on the Sabine Pass in Cameron Parish. Cheniere Energy's proposal to transform its existing LNG receiving terminal into a facility that can both import and export LNG would bring substantial economic benefits to southwest Louisiana, the Senator said.

Allen said that Japan will turn to LNG markets like Australia, and while it could be difficult to find the volumes it may need, driving up spot prices in the LNG market, it's the shipping companies that may benefit most directly, with additional demand for tankers driving up day rates.

Golar LNG ( GLNG - Get Report), a U.S.-based liquefied natural gas shipping company, was up 4% on Friday on three times its average level of trading.

As the crisis in the Middle East remained in the headlines and gasoline prices in the U.S. pushed higher, President Obama found himself drawn into the energy debate during a press conference on Friday afternoon. President Obama said that the Republicans were pulling out the "same old playbook" in their criticism that his administration was slowing down U.S. energy production and causing the pain at the pump for consumers.

The President called for more oil and gas production in the U.S., said that new requirements for drillers are reasonable, and also reminded Americans that the country "can't drill it's way" out of the energy crisis and needs comprehensive new energy policy incorporating renewable energy forms as well. President Obama also said that the government could tap the Strategic Petroleum Reserve if conditions merited the move.

"Here at home, everybody should know that, should the situation demand it, we are prepared to tap the significant stockpile of oil that we have in the Strategic Petroleum Reserve," Obama said during a press conference in Washington. The administration still won't comment on a specific gasoline price trigger for tapping of the oil reserve and has said that price is only one among a number of considerations. The President added that the U.S. will do whatever it takes "to make sure that oil supplies remain stable and that economic growth will continue."

-- Written by Eric Rosenbaum from New York.


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