(Robert Campbell is a Reuters market analyst. The views expressed are his own)
By Robert Campbell
NEW YORK, March 30 The showdown between Iran and the West over Tehran's nuclear program remains the overarching risk facing oil markets but in the near term, nuclear power in Japan may well become the short term focus for traders.
The near total shutdown of Japan's nuclear power industry since last year's devastating earthquake and tsunami turned the Japanese electricity sector into a surprise source of oil demand growth in Asia last year.
Japanese utilities have turned to low sulfur fuel oil and sweet crude oil as they scramble to meet power demand, outbidding regional refiners for some crude grades.
Only one of the country's 54 reactors remains operational and this plant is slated to shut down for a scheduled inspection and maintenance in May.
If all reactors are closed this summer, peak oil consumption by Japanese power generators this summer could reach 1 million barrels per day, or four times the level posted in 2010, according to J.P. Morgan oil analysts.
However, there is no guarantee that the entire industry will remain shut down this summer. Three reactors have passed first-stage stress tests, theoretically allowing them to be restarted.
But now, the question becomes political. Will the Japanese government allow the restart of some reactors? And if so, how quickly will they come on line? And will they start in time to take up some of the burden of meeting peak power demand during the hot summer?
The government is widely believed to be anxious to restart the plants to avoid possible power shortages this summer and reduce the oil bill, but is also under pressure to respect the wishes of local communities.
Not surprisingly, many Japanese regional politicians are reluctant to endorse reactor restarts without fresh safety assurances, according to a Reuters poll of Japanese mayors and governors.
The Japanese government's success or failure in its bid for support for nuclear restarts over the next few weeks may well set the tone for the summer given the time needed to restart reactors, as well as utilities' need to assure themselves of fuel supplies in time to meet demand.
EYES ON OHI
The key decisions may well come from the town of Ohi in Fukui prefecture, where two reactors belonging to Kansai Electric Power are awaiting permission to restart.
Ohi Mayor Shinobu Tokioka has backed a restart on condition of a thorough probe of the accident at the tsunami-hit Fukushima plant. But this investigation, which has no set date for completion, may not be wrapped up until the summer.
That could make a quick restart politically impossible and may well set a precedent for other mayors and regional politicians uncomfortable with nuclear power.
If so, that would easily dash hopes for even a modest reduction in expected Japanese oil demand this summer. That will do oil markets few favors heading into a summer period fraught with the risk of lost Iranian oil exports.
But even if the plants are allowed to restart, oil demand from the Japanese power sector will almost certainly be very heavy. Each restart will be a political minefield.
And increasingly traders', and Japanese businesses' thoughts will turn to the 2013 oil market.
Already the slow pace of nuclear restarts and public opposition to the industry in Japan suggests that extraordinary oil demand from Japan may well be a big factor again in the summer of 2013.
A successful restart of a few reactors that helps to restore public trust in nuclear power at least in the short term while a new energy policy is crafted will be crucial to avoiding a repeat of this summer's pressures on oil markets.
But a failed restart effort, or one that flies in the face of public opinion would be a forewarning of another challenging summer next year. (Editing by Marguerita Choy)