Oil Falls Most in Almost Five Months on Japanese Demand Outlook

Oil tumbled the most in almost five months as concern that damage from Japan’s earthquake will curb crude demand outweighed speculation of supply disruptions in the Middle East.

Oil fell 4 percent as a third explosion and fire struck Tokyo Electric Power Co.’s Fukushima nuclear plant. The March 11 temblor caused a tsunami that disabled cooling systems at the facility. Bahrain declared a state of emergency as a second contingent of troops from Gulf nations poured into the kingdom, while Libyan government forces moved against rebels.

“The unrest in Libya has been pushed to the back burner by the tragedy in Japan,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The third fire at the Fukushima plant is a sign that we’re looking at a longer-term problem, which will have a considerable impact on the Japanese economy.”

Crude oil for April delivery dropped $4.01 to $97.18 a barrel on the New York Mercantile Exchange, the lowest settlement since Feb. 28. Futures fell the most since Oct. 19 and are up 22 percent from a year ago.

Prices pared losses from the settlement after the American Petroleum Institute reported at 4:30 p.m. that U.S. crude-oil stockpiles increased 91,000 barrels to 348.6 million. April oil fell $3.59, or 3.5 percent, to $97.60 a barrel in electronic trading at 4:31 p.m.

Brent oil for April settlement declined $5.15, or 4.5 percent, to $108.52 a barrel on the London-based ICE Futures Europe exchange, the biggest one-day drop since Feb. 4, 2010. Prices fell to a three-week low.

Japan was responsible for 5.2 percent of global oil demand in 2009, according to BP Plc, which publishes its BP Statistical Review of World Energy each June. Japan is the third-biggest crude-consuming country after the U.S. and China.

Panic Selling

“This looks a lot like panic,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. “The move lower is probably overdone. Once the rebuilding gets under way, there will be a big increase in demand for commodities.”

Japan’s Topix stock index fell 9.5 percent after reports of the explosion and fire, the largest one-day slide since October 2008. The gauge has dropped 18 percent since the quake.

Refinery closures in Japan have affected about 1.3 million barrels of the country’s 4.52 million barrels a day of capacity, based on data from the Petroleum Association of Japan.

Refinery Fire

JX-Nippon Oil & Energy Corp. closed refineries in Sendai and Kashima in Japan’s northeastern Tohoku region. A fire at the Sendai plant was extinguished at about 2:30 p.m. local time today. The Negishi plant near Tokyo is also shuttered.

Cosmo Oil Co. shut its 220,000-barrel-a-day Chiba refinery following fires at liquefied petroleum gas storage tanks. Kyokuto Petroleum Industries Ltd. has shuttered its 175,000-barrel-a-day facility in Ichihara, near the capital.

Sony Corp., the country’s biggest export of consumer electronics, stopped operations at 10 factories because of power outages and damage. Toyota Motor Corp., the world’s largest automaker, has closed all of its plants.

“In the short term, demand is likely to take a hit,” said David Fyfe, head of the International Energy Agency’s oil industry and markets unit in Paris. “Initially, because of the curtailment of industrial activity, we may well see lower oil demand in Japan.”

Gasoline for April delivery fell 15.74 cents, or 5.3 percent, to settle at $2.8029 a gallon in New York, the biggest one-day drop since July 8, 2009.

‘Suffering in Japan’

“It’s sad to think that the only way motorists here will be getting relief at the pumps is on the backs of the suffering in Japan,” McGillian said.

Regular gasoline at the pump, averaged nationwide, declined 0.2 cent to $3.556 a gallon yesterday, AAA said on its website. It was the first drop in a month.

King Hamad bin Isa Al Khalifa of Bahrain asked the head of the military to guarantee security across the country, state television said. Clashes between mainly Shiite protesters and Bahraini forces escalated on March 13, with more than 100 people injured as demonstrators demanded democracy through elections from their Sunni monarch.

Troops from the Gulf Cooperation Council, including Saudi Arabia, moved into Bahrain yesterday, the first cross-border intervention since a wave of popular uprisings swept through parts of the Arab world.

Iranian Reaction

Iran criticized the deployment. “The presence of foreign troops and meddling into Bahrain’s internal affairs will only further complicate the issue,” Ramin Mehmanparast, a Foreign Ministry spokesman, said in Tehran today. Bahrain recalled its ambassador after the statement, the island kingdom’s state television reported.

Libya’s oil exports may be halted for “many months” because of damage to facilities and sanctions following a rebellion against leader Muammar Qaddafi, the International Energy Agency said today in its monthly Oil Market Report.

The Energy Department tomorrow will probably say U.S. crude oil supplies rose 1.3 million barrels last week from 348.9 million, according to the median of 15 analyst estimates in a Bloomberg News survey before an Energy Department report tomorrow.

Oil volume in electronic trading on the Nymex was 804,028 contracts as of 4:44 p.m. in New York. Volume totaled 565,955 contracts yesterday, 29 percent below the average of the past three months. Open interest was 1.59 million contracts.