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Oil closes below $100 for first time in 6 months
(Agencies)
Updated: 2008-09-16 11:31 New York -- Oil prices closed below $100 a barrel for the first time in six months Monday, tumbling in another dramatic sell-off as the demise of Lehman Brothers and the sale of Merrill Lynch deepened worries about the US economy.
Crude prices shed more than $5 a barrel and have now given up virtually all their gains for the year, extending a steep, two-month slide from record levels above $147 a barrel. Light, sweet crude for October delivery fell $5.47 to settle at $95.71 a barrel on the New York Mercantile Exchange -- oil's first settlement under $100 since March 4. Earlier, prices dipped to $94.13, the lowest trading level in seven months. The sell-off gained momentum in aftermarket trading as prices fell more than $6.50. In London, October Brent crude fell $5.20 to settle at $92.38 a barrel on the ICE Futures exchange. Oil's pullback also came as early signs suggested that Hurricane Ike delivered less damage than feared to the Gulf Coast energy oil and gas infrastructure. But pump prices jumped above $4 a gallon (above $1.05 a liter) in parts of the US as a precautionary shutdown of Gulf refineries caused gasoline shortages. The latest sell-off in oil began Sunday and accelerated Monday as traders digested a day of dramatic upheaval on Wall Street: Lehman Brothers Holdings Inc., a 158-year-old investment bank, filed for bankruptcy after failing to find a buyer and Merrill Lynch & Co. agreed to be bought out by Bank of America Corp. Lehman, Merrill and other big institutional investors were major participants in the commodities boom of the past year, helping push the price of oil, precious metals and grains to historic highs until a slowing global economy helped bring a halt to the rally. Analysts said investors feared that the upheaval in the financial sector could trigger another round of commodities liquidation, especially with Lehman likely to unwind its holdings. Other investors may also unload commodities, fearing that the deepening economic crisis will further reduce demand for energy and raw materials futures. "I think this is giving the bulls further reason to exit the market," said Stephen Schork, an oil analyst and trader in Villanova, Pa., who said the pullback could reflect selling by Lehman or possibly a hedge fund struggling to raise capital. "When you see price drops of this size, it reeks of someone being in trouble." Crude has fallen more than $50, or 35 percent, from its all-time trading record of $147.27 reached July 11 as a global economic slowdown continues to weigh on demand for energy. Other commodities traded mixed Monday, with energy futures down but gold, silver and most grains trading higher. Investors were also awaiting damage assessments to Gulf energy infrastructure after Ike's passage. US officials said Sunday that Ike destroyed at least 10 oil and gas platforms and damaged pipelines in the Gulf of Mexico. But that represents only a small portion of the 3,800 production platforms in the Gulf and pales in comparison to the catastrophic damage to energy infrastructure doled out by Hurricanes Katrina and Rita three years ago. "Fears of widespread refinery damage have been allayed considerably and a number of facilities are coming back up in a timely fashion," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Illinois. Still, power outages along the Gulf Coast were slowing efforts to restart some refineries. Meanwhile, virtually all oil production in the Gulf and about 94 percent of natural gas output remained shut-in Monday, according to the US Minerals Management Service. The shutdown of Gulf refineries sent wholesale gasoline prices spiking last week and pushed pump prices back above $4 a gallon in South Carolina, Alabama, Georgia and other states. Gasoline shortages were reported in Maryland, Virginia and North Carolina. Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service in Wall, New Jersey, said supply shortages caused by Ike and Hurricane Gustav should last at least another two weeks. "That means we're looking at close to $4 a gallon for the rest of September," Kloza said. "People are going to observe more of this disconnect where retail prices move higher even though crude oil is trading below $100 a barrel." Also adding to the selling pressure Monday was a slightly stronger dollar. A rising greenback encourages investors to unload commodities bought as a hedge against inflation or weakness in the US currency. Oil fell despite reports that militants have launched another attack Nigeria's oil infrastructure in a third day of violence. (For more biz stories, please visit Industries)
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