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Oil Prices Drop on Fears for Japan's Economy

Traders work in the oil options pit at the New York Mercantile Exchange in New York City, where economic fallout from the massive earthquake that struck off the east coast of Japan dipped oil below $100 for the first time this month, March 14, 2011

World oil prices are dropping because of fears the earthquake and tsunami in Japan will weaken the country's economy and curtail its demand for oil.

Oil recently has been trading at two-year highs. The violent conflict in Libya sharply cut its production and generated fears that the political unrest there could spread to other oil-producing countries in the Middle East, further reducing the world supply.

But those fears were outweighed Tuesday by worries that Japan, the world's third biggest oil importer, would at least in the short term limit its imports. Part of Japan's economy has already stalled as the country copes with the vast damage from last Friday's earthquake and tsunami and attempts to contain radiation leaks at some of its nuclear reactors.

Major Japanese industrial operations have already shut down. Sony, the country's biggest consumer electronics exporter, has stopped operations at 10 factories, while Toyota, the world's biggest automaker, has closed all of its plants.

The benchmark price for Brent crude oil on the London market fell to about $108 a barrel, down sharply from recent trading that had pushed the price close to $120. In New York, the price for U.S. crude dropped below the recent $100-per-barrel mark to the $97 range.

Analysts said Japan's oil imports could expand again as the country starts to clean up the damage and rebuilds the northeastern sector of the country that was swept away by the tsunami.