LOS ANGELES (AP) — Gas prices are still hovering near $4 a gallon in Southern California, but oil prices slumped below $98 a barrel Tuesday as traders braced for the worst in Japan, where a third explosion in as many days at an earthquake-damaged nuclear plant triggered a radiation leak.
Stock markets, an indicator of investors’ outlook on the global economy, fell sharply across the world, dragging energy prices with them.
By early afternoon in Europe, benchmark crude for April delivery was down $3.37 at $97.82 a barrel in electronic trading on the New York Mercantile Exchange. The contract added 3 cents on Monday to settle at $101.19. In London, Brent crude was down $4.58 at $109.09 a barrel on the ICE futures exchange.
The 9.0-magnitude earthquake on Friday and ensuing tsunami have hit demand for oil by shutting down five Japanese refineries — two due to fire. The affected refineries have combined daily capacity of 1.4 million barrels of oil, according to Platts, the energy information arm of McGraw-Hill Cos.
Prime Minister Naoto Kan said Tuesday that radiation that has spread from four reactors of the Fukushima Dai-ichi nuclear plant was enough to “impact human health” and the risk of more leaks was “very high.” The plant was initially damaged Friday.
Kan urged anyone within 19 miles (30 kilometers) of the plant, some 140,000 people, to stay indoors or risk getting radiation sickness.
Officials said Tuesday they have detected slightly higher-than-normal radiation levels in Tokyo but insisted there are no health dangers.
Japan’s benchmark Nikkei 225 stock average plunged as much as 14 percent Tuesday before closing down 10.6 percent after a 6 percent drop Monday. Leading markets in Europe were down 3 to 5 percent.
“We’re seeing a knee-jerk reaction due to this fresh explosion,” said Victor Shum, an analyst with energy consultancy Purvin & Gertz in Singapore. “It’s uncertain how much radiation is coming out or could affect Tokyo and that’s caused this across-the-board market reaction.”
The International Energy Agency’s monthly report on the oil market slightly increased its forecast for global oil demand in 2011 — by a daily 90,000 barrels — to 89.4 million barrels a day.
“Persistently high oil prices entail significant downside risks to this year’s prognosis,” which did not account for the impact of the events in Japan, the IEA said. “Nonetheless, short-term fuel switching within the power sector is likely to be significant, with oil, gas and coil all being used to make up for the loss of its nuclear output.”
Some analysts predicted that the immediate dampening effect of the earthquake on Japanese oil demand soon would be reversed.
“While several refineries have been destroyed by the earthquake and tsunami, and the level of crude oil refining is lower accordingly, the demand for diesel for power generation is higher after numerous nuclear power stations have had to be switched off,” said a report from Commerzbank in Frankfurt. “Consequently, Japan’s demand for oil is more likely to increase than decrease.”
The Paris-based IEA also warned that while the conflict in Libya between rebels and forces loyal to Moammar Gadhafi was far from settled, its impact on the country’s oil exports could be prolonged.
“What is becoming clearer is that the country’s oil production and exports could be off the market for many months due to both war-inflicted damage on oil infrastructure and international sanctions”, the IEA report said. It added that Libya’s oil exports — which averaged nearly 1.3 million barrels a day in 2010 — had “ground to a halt.”
Italy, France, Germany and Spain were Libya’s largest purchasers of oil last year, the IEA said.
The market, meanwhile, is also awaiting fresh information on U.S. oil stockpiles.
Data for the week ending March 11 is expected to show a build of 2.1 million barrels in crude oil stocks and a draw of 1.5 million barrels in gasoline stocks, according to a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.
The American Petroleum Institute will release its report on oil stocks later Tuesday, while the report from the Energy Department’s Energy Information Administration — the market benchmark — will be out on Wednesday.
In other Nymex trading for April contracts, heating oil was down 11.11 cents at $2.9527 a gallon and gasoline dropped 13.39 cents to $2.8264 a gallon. Natural gas fell 0.1 cent at $3.904 per 1,000 cubic feet.
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