Oil prices dropped below $100 a barrel Monday after a massive earthquake and tsunami devastated northeastern Japan, denting demand for crude from the world’s third-largest economy.
Officials estimate a 33-foot wall of seawater triggered by an 8.9 magnitude quake off the coast of northern Japan on Friday killed at least 10,000 people and severely damaged the country’s energy infrastructure. The benchmark Nikkei 225 stock average fell more than 6 percent Monday. “This disaster has in effect temporarily frozen the world’s third largest economy,” said Richard Soultanian of NUS Consulting. “It seems clear that Japan’s appetite for crude oil may be diminished in the near-term which should provide previously unforeseen slack in international oil markets.”
By early afternoon in Europe, benchmark crude for April delivery was down $1.42 at $99.74 a barrel in electronic trading on the New York Mercantile Exchange. The contract slipped as low as $98.47 earlier in the session and lost $1.54 to $101.16 on Friday.
In London, Brent crude was down $1.22 at $112.62 a barrel on the ICE futures exchange.
Three of Japan’s five largest refineries have been shut down, which will immediately crimp demand for crude. Japan is the world’s third-largest crude consumer at 4.5 million barrels a day, the second-largest net oil importer and the biggest importer of liquefied natural gas and coal.
On the other hand, analysts said diesel use in Japan could be on the rise. “The demand for diesel fuel to generate electricity should be higher, as the rationing of power is likely after numerous nuclear power stations have been switched off,” said a report from Commerzbank in Frankfurt.
Traders were also in a selling mood Monday after disappointing U.S. February retail sales data released Friday, which suggest the recent jump in crude prices is beginning to hurt demand for gasoline. “Put simply, demand destruction is taking place, whether that’s in Japan or in the U.S. at the pump,” energy consultant The Schork Report said. “A very bearish picture for crude oil.”
Investors had been concerned about possible unrest in OPEC leader Saudi Arabia but police prevented a protest organized by pro-democracy activists on Friday in the capital, Riyadh. “The Libyan war still rages on, but in and of itself, will likely not be sufficient to re-spark the rally in crude given that the Saudis have stepped up to replenish the market with extra barrels, and more critically, have escaped — at least for now — the debilitating impact of the massive demonstrations that have swept other countries in the region,” said Edward Meir at MF Global in New York.
In other Nymex trading for April contracts, heating oil was up 0.76 cent at $3.0366 a gallon and gasoline dropped 2.81 cents to $2.9596 a gallon. Natural gas rose 6.2 cents to $3.951 per 1,000 cubic feet.
Alex Kennedy in Singapore contributed to this report.
