LONDON, Brent crude fell by as much as 2.2 percent to below US$112 as a deepening nuclear crisis in Japan and rising radioactivity levels heightened risk aversion across financial markets. Japanese authorities warned that radiation levels had become significantly higher around the nuclear power plant on Tuesday after explosions at two reactors, and the French embassy said a low-level radioactive wind could reach Tokyo within hours.
April Brent fell US$2.04 to US$111.63 a barrel at 0922 GMT after trading as low as US$111.19. Prices on Monday touched a two-week low of US$111.16, down more than 7 percent from a 2-1/2 year high hit on Feb. 24. U.S. crude for April dropped US$2.16 to US$99.03. “It’s a combination of uncertainty and risk aversion,” said Commerzbank analyst Eugen Weinberg. “It’s not really fundamental concerns that Japan, one of the largest oil consumers, will be missing over the next few months. It’s more sentiment that is depressing the prices of risk assets such as equities and commodities.”
Japanese stocks plunged more than 14 percent, heading for their biggest drop since 1987 as concerns grew over the economic impact of the unfolding disaster Oil demand from Japan, the world’s third-largest user, is likely to decline in the short term as manufacturing and transport slow but could then rise as the country seeks to replace nuclear with oil-fired power during reconstruction efforts. The International Energy Agency (IEA) said on Tuesday global oil demand was likely to be lower than previously forecast in 2011 as a result of a price shock and trimmed its forecast by 10,000 barrels to 1.44 million barrels per day. Oil markets were also keeping a close eye on developments in the Middle East, where Saudi Arabia sent troops into Bahrain on Monday to help calm weeks of protests by the Shi’ite Muslim majority. On the data front, markets were looking towards weekly U.S. inventory numbers from industry group American Petroleum Institute. A Reuters poll indicated U.S. crude oil stockpiles probably rose by 1.8 million barrels last week.