Market Overview

How To Trade On Japan's Reduced Oil Demand (TM, SNE, EZJ, EWV, UCO, SCO)


The price of crude oil fell to near the $99 per barrel level on Tuesday in Asia, as lower demand from Japan and worries that the Japanese economy could be plunged into a deep recession offset concerns over the unrest that has spread throughout North Africa and the Middle East. The demand for crude oil in Japan, which is the world's 3rd largest economy, plummeted shortly after the country was hit by a massive earthquake, followed by a devastating tsunami.

The Japanese were forced to shut down several nuclear power plants after they were damaged during the tsunami and thousands of citizens have been evacuated from the areas surrounding the reactors or told to stay indoors to reduce exposure to elevated radiation levels.

It would seem that the energy normally generated by the nuclear power plants would need to be replaced by conventional fuels. However, the earthquake, tsunami and ensuing fires have also taken nearly a 3rd of Japan's oil refining capacity offline.

Another cause for the lower demand is that many factories were damaged during the disaster. With major Japanese corporations such as Sony Corporation (NYSE: SNE) and Toyota Motor Corporation (NYSE: TM) closing factories, the Japanese economy doesn't need as much energy as it did before the disaster struck.

In another blow to Japan's prospects, the Nikkei 225 index of Japanese stocks fell 1,015.34 points, or 10.55%, on Tuesday, amid fears that the disaster could send the Japanese economy into a recession.

If Japan is able to turn things around sooner than expected, company's like Toyota Motor Corporation (TM) and Sony Corporation (SNE) will benefit directly.

Investors who think Japan will be able get past its current troubles but want to reduce the amount of risk associated with individual stocks might want to consider the ProShares Ultra MSCI Japan (NYSE: EZJ), which seeks seeks daily investment results, before fees and expenses, that correspond to twice the daily performance of the MSCI Japan Index.

Investors who feel that Japanese stocks will continue to fall should consider the ProShares UltraShort MSCI Japan (NYSE: EWV), which seeks daily investment results, before fees and expenses, that correspond to twice the inverse (opposite) of the daily performance of the MSCI Japan Index.

If the unrest in the Middle East continues or gets worse and Japanese demand for oil recovers sooner than expected, the ProShares Ultra DJ Crude Oil (NYSE: UCO) should climb higher.

If the Middle East unrest begins to wane or Japan's economy continues to falter, the ProShares UltraShort DJ Crude Oil (NYSE: SCO) is an ETF that would likely see its share price rise.

Posted-In: Long Ideas News Sector ETFs Short Ideas Specialty ETFs Commodities Events Global


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