Oil hits two-week low, Japan dents investor sentiment

By @ibtimes on

Oil fell to two-week lows on Monday, slipping nearly $3 at one point, as concerns over the economic impact from Japan's catastrophic earthquake and tsunami knocked global investor confidence.

ICE Brent crude was trading $2.20 lower at $111.64 a barrel by 0959 GMT (5:59 a.m. ET), having struck $111.16, the lowest since February 25. U.S. crude fell $2.06 to $99.10, after hitting an intraday low of $98.55.

Oil demand from Japan, the world number three energy consumer, was expected to fall in the short to medium term as the country's economic activity was likely to be subdued following devastation caused by the strongest quake on record and the massive ensuing tsunami, analysts said.

Japan's Nikkei stock average <.N225> fell more than 6 percent. Global commodities prices mostly fell.

Japanese stocks fell sharply as the impact on the Japanese economy from the massive earthquake on Friday is worrying. Asian shares were dragged lower and the trend has been to avert risks, including oil, analysts with Japan's Mizuho Corporate Bank said in its commodities research note.

Prime Minister Naoto Kan on Sunday said the country was facing the biggest disaster since the second world war. The earthquake and tsunami on Friday devastated a large part of northeast Japan, killing at least 1,000 people, with thousands more missing.

Nuclear power plants' coolant systems failed and two explosions hit the Fukushima nuclear plant. Many nuclear plants and oil refineries have been shut. Ports and other infrastructure sustained severe damage.

Refined oil products and gas prices, however, were outperforming crude oil prices due to an expected increase in import demand in coming weeks and months from Japan to cover lost oil refining and nuclear power generation capacity.

Construction shares were up in Asia as the northeast Japan needs extensive reconstruction work.

Christopher Bellew with Bache Commodities said the unrest in oil rich North Africa and the Middle East would continue to provide support to oil prices.

In Libya, Muammar Gaddafi's troops battled rebel fighters for control of the strategic oil town of Brega, while France was stepping up efforts to persuade world powers to impose a no-fly zone over Libya.

More than half of Libya's 1.6 million barrels per day oil output has been shut in due to the unrest.

In Yemen, heavy gunfire was heard south of the capital on Monday and soldiers deployed in force in Sanaa itself, with a new wave of rallies reported across the country demanding that President Ali Abdullah Saleh quit.

(Reporting by Ikuko Kurahone in London, Alejandro Barbajosa in Singapore; editing by Keiron Henderson)

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