It's unclear how much its economy will be affected by the disaster, yet the news helped slow down what had been a sharp, three-week rally in oil markets.
Benchmark West Texas Intermediate for Apr delivery tumbled USD 1.60 to USD 101.10 per barrel in midday trading on the New York Mercantile Exchange. Prices fell as low as USD 99.01 per barrel at one point.
Oil prices have surged 24 per cent since the middle of Feb, crossing the USD 100 mark as uprisings in Libya forced much of the country's oil production to shut down.
The wave of pro-reform protests across North Africa and the Middle East have rattled energy markets, and many oil traders fretted about unrest spreading to Saudi Arabia.
Officials also beefed up security around the country's oil fields.
"This is a market that's ripe for a correction," analyst and trader Stephen Schork said. "Everyone was waiting for this ''Day of Rage'' in Saudi Arabia, "but at this point, there aren't any headlines" to suggest that the country's oil fields are in danger.
The tsunami that ravaged Japan hit the coast with a 23-foot (7-meter) wall of water, sweeping away ships, cars and homes. It was unleashed by a magnitude-8.9 offshore quake that was followed for hours by more than 50 aftershocks. Hundreds are believed dead in the coastal city of Sendai.
"Our initial assessment indicates that there has already been enormous damage," Chief Cabinet Secretary Yukio Edano said.
A large fire erupted at the Cosmo oil refinery in the city of Ichihara and burned out of control with 100-foot (30-meter) flames leaping into the sky. Other refineries were shut down as a precaution.
Exxon Mobil Corp. suspended operations at the TonenGeneral Sekiyu Kawasaki Refinery, which the company partially owns, though it doesn't appear to have suffered any damage. TonenGeneral refines 296,000 barrels per day of crude.
Royal Dutch Shell also reported no damages to its refineries in Japan or at any of the 3,900 Showa Shell-branded stations in the country.
Tesoro Corp. said its refineries in Hawaii and Alaska were safe, though a few retail stations in Hawaii were closed as a precaution. Halliburton Co. said all of its employees working in the region are OK.
Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates, said the tsunami will likely depress oil demand as Japan's economy picks up the pieces, though it's hard to say for how long.
Some of Japan's nuclear power plants also may have been damaged, and the country could be forced to import more oil and natural gas. The oil rally may have cooled this week, but it could turn right back around, Ritterbusch added.
"Libya is still a big deal," he said. As long as the country has no clear leader, world supplies will continue to be under increased pressure. "That''s going to continue to drive oil prices."
In other Nymex trading for Apr contracts, heating oil dropped 1.15 cents to USD 3.0338 per gallon and gasoline futures lost 2 cents at USD 2.9970 per gallon. Natural gas rose 9 cents to USD 3.923 per 1,000 cubic feet. In London, Brent crude gave up USD 1.23 at USD 114.20 per barrel.