Brent oil prices plunged almost $6 at one stage today, as fears grew over a potential nuclear disaster in Japan.
Brent North Sea crude for delivery in April slumped $5.79 to $107.88 a barrel in London trade. It later pulled back to $110.87 but that still left it down $2.80 compared with yesterday's close. New York's main contract, light sweet crude for delivery in April, was down $2.11 to $99.08.
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.
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,' analysts said.
Oil production has almost ground to a halt in Libya because of the country's unrest, the Paris-based International Energy Agency (IEA) said today.
IEA warns high oil prices could hit growth
The International Energy Agency warned today of a 'marked slowdown' in the global economy unless oil prices fall from current high levels as post-recession demand picks up.
'If prices remain at current levels or rise further, by September 2011, if not before, the global economy may feature a marked slowdown,' the IEA said in its monthly oil report. This effect would be exacerbated by expected fiscal tightening if inflationary pressures become entrenched, said the IEA which advises the industrialised world.
While admitting that estimating the impact is 'notoriously difficult', the IEA suggested that a 10% increase in the price of oil could cut global growth by between 0.2 and 0.7 percentage points after one year, and possibly by twice as much in the second year.
Turning to the violent unrest in OPEC member Libya, the Paris-based agency said oil production, and certainly exports, had practically ground to a halt there.
'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, the IEA said.
The IEA report was completed with the full scale of the devastation wreaked by the earthquakes and tsunami in Japan yet to be measured. With its nuclear capacity wrecked by explosions at reactors in the wake of the natural disasters, the IEA predicted that Japan will need a combination of extra oil and gas to make up the shortfall.
However, the IEA admitted that 'there is no way of knowing yet how Japanese oil demand will evolve short-term'. In its report, the IEA estimated that Japanese oil consumption might increase by 200,000 barrels per day if the entire electricity output that usually comes from the country's 11 nuclear power plants was replaced by oil-fueled production.
Speaking in Oslo, IEA chief Nobuo Tanaka, from Japan, noted that his home country has large stockpiles of oil, equal to some 170 days consumption. He added that 'if necessary, we stand ready to use the strategic stockpiles.'
Founded in 1974 at the height of the oil crisis, the IEA requires its members, which include most of the world's industrialised nations, to stockpile oil corresponding to at least 90 days' worth of their net imports.
