Traders were assessing potential outages of refinery capacity and the impact on overall crude demand, as aftershocks from an 8.9-magnitude earthquake that hit Japan earlier in the morning continued to rock the country. Tsunami waves crashed onto Japan's coastline and threatened a number of other countries.
Prices are likely to remain volatile as the market assesses the damage, said Olivier Jakob, managing director of Swiss consultancy Petromatrix. The earthquake could knock out some of Japan's refining capacity and hurt the country's economy, reducing demand. But the shutdown of nuclear plants could force utilities to turn to fuel oil or burning crude directly, he said.
In the fuel oil market, traders recalled a surge in Japanese imports following a 2007 earthquake, when several nuclear power plants went offline.
Fires broke out at two Japanese refineries while another was shut because of a power outage, but the extent of the damage wasn't immediately clear.
The front-month Brent contract for April delivery on London's ICE futures exchange was down $3.02, or 3%, at $112.41 a barrel. The front-month April contract on the New York Mercantile Exchange was trading down $3.19, or 3%, at $99.51 a barrel, sinking below $100 for the first time since March 2.
"There's still a lot of uncertainty here," said Ken Hasegawa, a trader at Newedge Japan in Tokyo. Oil futures "have come down after the earthquake, but once the initial reaction is over the market focus will again turn to Middle East."
Oil prices surged late Thursday after police in Saudi Arabia fired on demonstrators in the eastern city of Qatif. Expectations of a "day of rage" protest in the key oil producer put market participants on edge and any news of unrest from the region could reverse the day's move downwards.
Saudi Arabia has played a central role in calming the oil market by boosting production after anti-government protests in Libya disrupted that country's exports. Fighting continued in Libya Friday, with battles centered in the key oil town of Ras Lanuf.
The near-total removal of Libya's exports from the market is already factored into prices, traders said. If Saudi Arabia avoids widespread protests, focus may stay on the earthquake's impact, as well as negative economic data that could point to weaker global oil demand. News of fresh economic difficulties in Portugal further rattled investors.
"A cocktail of bad news on the economic front has switched focus from supply disruptions to potential impact on demand," said Ole Hansen, manager of futures and fixed income at Saxo Bank in Copenhagen.
The ICE's gasoil contract for April delivery was $7.50 down at $945.75 a metric ton, while Nymex gasoline for April delivery was 684 points at $2.9512 a gallon.
Max Lin and Wayne Ma in Singapore and Mari Iwata in Tokyo contributed to this article. For the latest updates PRESS CTR + D or visit Stock Market news Today
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