March 11, 2011 -- The United States will not tap the U.S. Strategic Petroleum Reserve, President Obama said today, despite predictions by some economists and analysts that the devastating earthquake and tsunami in Japan will affect financial markets around the globe.
"Right now, we're not seeing a shortage of supply," the president said at his news conference in Washington, D.C.
The petroleum reserve is intended for "a severe disruption in supply," he said, but refineries are operating at a "fairly" full capacity.
Looking ahead, he said, if the United States wants to "secure our long-term prosperity," beyond increased domestic production, it must "gradually reduce demand" for oil.
"We are encouraging offshore exploration and production," he said. "We're just doing it responsibly."
Obama also said there has been a "positive trend" in U.S. economic growth, including a drop in the unemployment rate.
The president said he was heartbroken about the tragedy in Japan but confident that the Japanese would rebuild.
Meanwhile, his director of the White House National Economic Council offered his analysis.
"This is clearly going to add complexity to Japan's challenge of economic recovery," although it might also help by adding to its gross domestic product, Lawrence Summers said on CNBC this morning.
"It may lead to some temporary increments ironically to GDP as a process of rebuilding takes place," Summers said. "In the wake of the earlier Kobe earthquake, Japan actually gained some economic strength," referring to the 1995 quake that killed more than 6,000 people.
A number of companies have reported some damage to their facilities in the region. Sony reportedly has halted production in six factories in the cities of Fukushima and Miyagiall and has evacuated most employees, according to Reuters.
Tire company Bridgestone, camera maker Canon and Citigroup Holdings Japan reportedly have not faced major damage to their facilities in the region, Reuters reported.
"This is a tragedy at this particular point Japan did not need," Summers said, referring to the fragile state of the Japanese economy.
The Japanese GDP contracted 1.3 percent from October to December, according to Bloomberg News earlier this week.
Possible Global Effects
"This is certainly the worst thing that can happen in Japan at the worst time," economist Nouriel Roubini told Bloomberg Television. "There will be fiscal stimulus to reconstruct but Japan already has a budget deficit of close to 10 percent of" gross domestic product and an aging population.
Beyond Japan, Tom di Galoma, head of fixed interest rates trading with Guggenheim Securities, said he expects the events in Japan to affect U.S. markets today and into the future.
"I think the overriding view in the marketplace is that the Japanese investors may have to sell U.S. government securities to pay for rebuilding of the economy and their infrastructure," he said.
"I'm concerned that could happen, certainly. I think my whole view is that the Japanese could be sellers for the next couple weeks trying to raise money."
But while selling treasuries to raise money after a natural disaster may be a knee-jerk reaction for some investors, di Galoma said, the Bank of Japan might buy U.S. treasuries to help keep the yen from appreciating. If the yen gains value relative to other currencies, Japanese exports will become more expensive and less attractive for other countries.
The Dow Jones Industrial Average opened with a sharp drop before recovering in early trading. The index was 12,044.40, up 0.50 percent, at the end of the day.
Mike Fitzpatrick, editor of Energy Overview newsletter, said the tsunami will contribute to a drop in oil prices for the unforeseeable future.
"With Japan's economy decimated, it will constrict oil demand from Japan. For the moment, the tsunami problem seems to have trumped Libya concerns apparently," Fitzpatrick said.
Oil futures settled at 101.16 on Friday, down $1.54 from Thursday, after dropping to a low of $99.01 in early trading.
"It's going to be a while until there's an accurate assessment of how much damage has been done," Fitzpatrick said.
Reuters reported a "major fire" at an oil refinery east of Tokyo, with all operations halted.
Japan is the third largest consumer of oil in the world, behind the United States and China, and the second-largest net importer of crude oil, according to the Department of Energy.
There's Also the Human Costs
Di Galoma also added that other factors in the Middle East are affecting the marketplace.
"I think all eyes are on Saudi Arabia, where demonstrations are supposed to hit the streets," he said. "We could see some growing safety bid from investors seeking safety out of other markets."
But there's still the human toll to consider, with reports that the 23-foot tsunami killed at least 200 people and destroyed nuclear power plants, bridges and other infrastructure.
"Right now, the place to start is this is a human tragedy for the people who've lost their lives, for their families, the communities that will never be the same again," Summers said.