UPDATE 14-Oil drops 4.5 pct on Japan, Mideast clashes eyed

                                
 * Japan nuclear reactor crisis sends oil prices lower
                                
 * Bahrain clashes, Libya fighting helps limit oil losses
                                
 * Coming up: EIA oil data at 10:30 a.m. EDT Wednesday
 (Recasts, updates prices, market activity following API data)
                                
 By Robert Gibbons
                                
 NEW YORK, March 15 (Reuters) - Brent crude prices tumbled
4.5 percent on Tuesday, the biggest drop in 13 months, as
Japan's escalating nuclear crisis sparked risk aversion across
markets, outweighing concerns about turmoil in Bahrain and
Libya.
                                
 U.S. crude prices fell nearly 4 percent as oil traders
braced for an extended period of weak demand from the world's
No. 3 consumer after an explosion at a quake-crippled nuclear
power plant sent radiation wafting into Tokyo. [ID:nL3E7EF3OE]
                                
 Oil markets, which shot to near $120 a barrel in February
on protests in North Africa and the Middle East, also kept a
close eye on violent clashes in Bahrain and fighting in Libya
that saw further gains against rebels by forces loyal to
Muammar Gaddafi's government. [ID:nLDE71O2CH]
                                
 Brent crude futures for April delivery <LCOc1> settled at
$108.52 a barrel, dropping $5.15 or 4.5 percent, its biggest
percentage drop since Feb. 4, 2010. During the session, it fell
as low as $107.88, its lowest since Feb. 23.
                                
 U.S. crude futures for April delivery <CLc1> fell $4.01 to
settle at $97.18 a barrel. The intraday low of $96.71 was the
lowest price since March 1, when prices fell to $96.31.
                                
 "It looks like the Japanese economy may be affected for a
longer period than was thought last week," said Gene McGillian,
analyst at Tradition Energy in Stamford, Connecticut.
                                
 Total U.S. crude trading volume rebounded to 803,435 lots,
up from about 566,000 on Monday, but still 10 percent below the
30-day average, according to Reuters data.
                                
 Risk aversion also hit commodities and stock markets,
though U.S. equities recovered a bit after a U.S. Federal
Reserve statement said the U.S. recovery was gaining traction
and rising inflation pressures should prove transitory. [.N]
                                
 MARKETS BUFFETED BY JAPAN'S WOES
                                
 The market stayed focused on Japan, where two more blasts
at the Daiichi plant in Fukushima facility blew a hole in a
building housing a reactor and cooling pool for spent fuel
rods. The unfolding crisis spooked investors, who fled riskier
assets and parked money in government debt. [MTKS/GLOB]
                                
 Analysts expect Japan's crude oil demand to decline in the
short term due to shut refineries and stalled economic
activity. An early view that distillate imports would spike to
substitute nuclear plant generation with oil-fired power seemed
to lose influence in the markets on Tuesday.
                                
 U.S. benchmark heating oil futures <HOc1> slumped more than
3.5 percent and the crack spread, or profit margin for
refiners, fell $1.29 to $26.20 a barrel <CL-HO=R> in
post-settlement trading. Both posted gains on Monday.
                                
 Ahead of a seasonal specification shift from winter grade
fuel, U.S. gasoline futures tumbled 5.3 percent, with the crack
spread sliding $2.83 to $20.31 a barrel <RB-CL=R>.
                                
 High retail pump prices kept U.S. gasoline demand lower
last week versus the year-ago period, though pleasant weather
pushed demand up versus the previous week, according to a
MasterCard report. [ID:nN15106523]
                                
 <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
                                
 Japan's unfolding disaster:     http://r.reuters.com/mak58r
                                
 Japan graphics suite:           http://r.reuters.com/quh58r
                                
 How a meltdown can occur:       http://r.reuters.com/rah58r
                                
 Nuclear plants, quakes zones:   http://r.reuters.com/qah58r
                                
 LIVE COVERAGE
                                
   http://live.reuters.com/uk/Event/Japan_earthquake2 Japan
                                
 quake rips through commodities, energy:
                                
  http://link.reuters.com/bum58r
                                
 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
                                
 BAHRAIN CLASHES, LIBYAN BATTLES
                                
 Oil investors watched developments in Bahrain where martial
law was declared a day after Saudi forces arrived in the
Sunni-ruled kingdom following weeks of protests by the island's
Shi'ite Muslim majority. [ID:nLDE72E02N]
                                
 Muammar Gaddafi's forces continued to make advances against
rebels in Libya while world powers failed to agree to push for
a no-fly zone. [ID:nLDE72E00R]
                                
 With the focus firmly on Japan, oil reacted little to
weekly inventory data from the American Petroleum Institute
showing a slight build in U.S. crude stocks and an unexpected
build in distillates, with traders awaiting further direction
from U.S. Energy Information Administration data on Wednesday.
[ID:nN15143954]
 (Additional reporting by Nia Williams and Ikuko Kurahone in
London and Alejandro Barbajosa in Singapore; Editing by David
Gregorio)