While oil – and just about everything else but Treasuries -- sold off today in the wake of the Japanese nuclear crisis, oil prices may be poised to surge as demand for 'alternative' energy sources to replace lost nuclear power in Japan ramp up.
I spoke with Brad Schaeffer, CEO of INFA Energy Brokers, after the closing bell Monday to get his perspective on the global oil markets.
The situation in Japan remains grave, as workers struggle to regain control of the nuclear reactors at Fukushima Daiichi nuclear power plant.
But when the crisis passes, the third largest economy in the world will need to begin planning how it will replace the energy production capacity it lost to the tsunami.
"Japan has some of its industry curtailed," Schaeffer says, "like auto and steel – but that's not going to last too long. People are starting to realize that there economy is not going to be shut down for long -- and they're going to have to start to look for alternative fuel sources."
In this context, Schaeffer means 'alternative fuel' in the exact opposite sense of what it usually denotes – as Japan turns from nuclear energy to burning fossil fuels.
As Schaeffer points out: "About 27 percent of their power needs come from nuclear plants. So if they take them all offline, they are going to have to compensate for the shutdown by running their generators on other fuels."
And oil will likely be the natural choice to replace.
The other option, on the fossil fuel front, is liquefied natural gas.