Oil prices fell sharply on Tuesday, the 15th of March 2011, following fears about a looming nuclear catastrophe in Japan. Brent crude for April delivery was at USD $ 108.52 a barrel, falling by 4.5 percent, which is its biggest percentage drop since February 4, 2010. Brent’s spot price closed at USD $ 110.25 a barrel, WTI closed at USD $ 97.18 a barrel, while West Texas Sour, Midlands closed at USD $ 92.93 a barrel.
Explosions at the Fukushima nuclear plant in Japan have raised fears about a possible meltdown of the nuclear reactors leading to a major leak of radioactivity. The initial idea circulating in the market earlier this week about an increase in oil demand from Japan to compensate for the loss in electricity production from its nuclear power plants took a back seat, as investors realized that the decreased demand of oil from the world’s third largest economy might persist for a considerable period of time. This resulted in a lack of risk appetite amongst the investors, prompting them in taking risk aversion decisions by carrying out heavy-sell offs, leading to a fall in price.
The market was also cautious about the developments in Bahrain, where martial law was imposed by the king and Saudi Arabia sent its forces to the kingdom to quell the increasing unrest from the kingdom’s Shi’ite population. Saudi Arabia is wary of protests spreading amongst its own Shi’ite minority, and hence took this evasive action. A disruption in supply from Saudi Arabia due to worsening law and order conditions would escalate oil prices. Even though investors were viewing the crisis in Bahrain warily, the situation in Japan was the overriding factor influencing the oil prices.