LONDON, Mar 15 – The price of benchmark Brent crude oil dived almost $6 Tuesday on growing fears the earthquake in Japan and subsequent crisis at its nuclear facilities will hit the economy badly, analysts said.
Brent North Sea crude for delivery in April slumped $5.79 to $107.88 a barrel in midday London trade. It soon pulled back to $109 but that still left it down $4.67 compared with Monday\’s close.
New York\’s main contract, light sweet crude for delivery in April, was down $3.40 to $97.79.
Japan, the world\’s third largest economy, is also the third largest oil-consuming country but its demand for crude is expected to drop in the aftermath of its worst ever earthquake which has devastated the country.
After several explosions at the Fukushima nuclear plant, radiation levels have risen and there are fears now of a major leak.
"Substantial radiation leaks will likely hamper reconstruction and economic activity resulting in reduced oil consumption," said Bjarne Schieldrop, chief commodities analyst at Swedish banking group SEB.
"This is the main concern pushing the oil price lower today."
Disruptions to oil production in Libya was also on investors\’ radar although the "industry probably factored in a long period without Libyan oil a week or so ago," said Philip Wiper, an analyst at brokers PVM.
Oil production has almost ground to a halt in Libya because of the country\’s unrest, the Paris-based International Energy Agency (IEA) said Tuesday.
The IEA, which provides energy policy advice for oil consuming nations, added that there would be a marked economic slowdown should oil prices remain high.
Although prices are falling, they are still far above levels seen at the start of the year.
The IEA said of Libya on Tuesday: "What is becoming clearer is that the country\’s oil exports of some 1.3 million barrels per day will remain off the market for a considerable time due to both war inflicted damage … and international sanctions."
Current high oil prices "entail significant downside risks to this year\’s outlook," it added in its latest monthly report.
Brent crude has risen by around 50 percent in the last six months, first on very strong demand as global economies picked up post-recession and, then on "on increased regional geopolitical risk in North Africa and the Middle East, the IEA said.
"If prices remain at current levels or rise further, by September 2011, if not before, the global economy may feature a marked slowdown," the report warned.