UPDATE 9-Oil down on Japan crisis; Bahrain watched closely

                                
 * Brent dips below $108/bbl for first time since Feb. 23 
                                
 * Bahrain declares martial law after Saudi troops arrive
                                
 * Coming up: US API weekly inventory data
                                
 
                                
 (Updates prices, Middle East situation, analyst comment)
                                
 By Nia Williams
                                
 LONDON, March 15 (Reuters) - Oil prices fell on Tuesday as a
deepening nuclear crisis in Japan caused by last Friday's
catastrophic earthquake and tsunami heightened risk aversion
across financial markets.
                                
 A magnitude 6.2 earthquake hit eastern Japan on Tuesday,
hours after the French Nuclear Agency said the country's nuclear
crisis is equivalent to number six on the INES scale of nuclear
accidents from one to seven. The 1986 Chernobyl disaster was a
seven and Three Mile Island a five.
                                
 Panic buying broke out in Tokyo shops after explosions at
two nuclear reactors sent a low-level radioactive wind towards
the capital on Tuesday, although officials said radiation levels
at the stricken Fukushima Daiichi nuclear complex had fallen
after an earlier spike. [ID:nLDE72D2FT]
                                
 April Brent <LCOc1> was down $5.28 to $108.39 a barrel at
1358 GMT, after earlier hitting a low of $107.88, last seen on
Feb 23. U.S. crude for April <CLc1> dropped $3.90 to $97.28
after slipping as much as $4.
                                
 "This is a massive risk off day today," said Christin Tuxen,
analyst at Danske Bank. "The risk averse sentiment is coming
through both in the equity market and euro/dollar. It's weighing
on oil even though fundamental drivers should suggest an
upside." 
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
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  
 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>  
                                
 At one point, Japanese stocks plunged more than 14 percent,
heading for their biggest drop since 1987 as concerns grew over
the economic impact of the unfolding disaster [.T]
                                
 Oil demand from Japan, the world's third-largest user, is
likely to decline in the short term as manufacturing and
transport stall but could then rise as the country seeks to
replace nuclear with oil-fired power during reconstruction. 
                                
 The International Energy Agency (IEA) said on Tuesday global
oil demand was likely to be lower than previously forecast in
2011 as a result of a price shock and trimmed its forecast by
10,000 barrels to 1.44 million barrels per day. [ID:nWLA5303]
                                
 
                                
 MARTIAL LAW IN BAHRAIN
                                
 Oil markets kept a close eye on developments in the Middle
East where Bahrain declared martial law on Tuesday, a day after
Saudi forces arrived in the Sunni-ruled kingdom to help restore
calm following weeks of protests by the island's Shi'ite Muslim
majority.[ID:nLDE72E02N]
                                
  Opponents of Bahrain's Sunni ruling family called the move
by Saudi Arabia a declaration of war, while Iran denounced it as
unacceptable and the United States urged its nationals to leave
the island, which is home to the U.S. Navy's Fifth Fleet.
                                
 "We continue to see developments in Bahrain as an important
touchstone for the rest of the region," said Barclays Capital
analyst Amrita Sen. "It appears likely that the other
governments are determined to contain unrest to Bahrain for fear
of a heightened external influence in the region."
                                
 An opposition politician said a Bahraini man was killed in
clashes with police and analysts said escalating violence in the
Middle East would be likely to support oil prices.
 <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
  Reuters Global Oil Forum will host an interactive Q+A with IHS
Global Insight Middle East specialist Samuel Ciszuk from 1530
GMT (1130 EDT) on Tuesday to discuss the political outlook for
the oil market. To visit Reuters Global Oil Forum:   
rmchat://room/thomsreuters.com/Global_Oil_Forum   
 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>  
                                
 In Libya, Muammar Gaddafi's forces bombarded two rebel-held
towns as the battle for eastern Libya edged closer to the
insurgent stronghold Benghazi, far outpacing diplomatic efforts
to impose a no-fly zone to help the insurgents. [ID:nL3E7EF08L]
                                
 On the data front, markets were looking towards weekly U.S.
inventory numbers from industry group American Petroleum
Institute. A Reuters poll indicated U.S. crude oil stockpiles
probably rose by 1.8 million barrels last week. [EIA/S]
(Additional reporting by Alejandro Barbajosa and Ikuko Kurahone;
editing by Keiron Henderson)