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Oil falls below $100; eyes on Hurricane Ike

business Updated: Sep 15, 2008 08:39 IST
Fayen Wong
Fayen Wong
Reuters
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Oil tumbled below $100 a barrel to a six-month low on early signs that Hurricane Ike may have spared key Gulf Coast infrastructure, although traders were cautious on Monday as they awaited status reports on more Texas refineries.

The upside for oil, which has lost about 32 percent since its peak of over $147 in mid-July, was also limited as financial woes mounted after talks to rescue Lehman Brothers faltered and Bank of America Corp agreed to buy Merrill Lynch & Co Inc, which has also been struggling with mortgage-related debt.

US light crude for October delivery fell $1.52 or 1.5 per cent to $99.66 a barrel by 0223 GMT. London Brent crude fell $1.23 to $96.35.

US prices dived as low as $98.46 -- the lowest since Feb. 26 -- on Sunday, when the New York Mercantile Exchange held a special trading session due to Hurricane Ike.

"Losses have narrowed because there is still a large amount of Gulf production offline and refineries are still under threat. The market is waiting for more news on the extent of the damage before making their next move," said Gerard Burg, a commodities analyst at the National Australian Bank in Melbourne.

"But the market will also be looking at the failure of talks to rescue Lehman as that might darken economic outlook and weaken energy consumption."

If Lehman and Merrill disappear or get taken over, then three of the top five US investment banks would have dissolved or been bought inside six months. Bear Stearns was acquired in a fire sale by JPMorgan in March.

Oil has fallen steadily since mid-July's peak of over $147 a barrel amid mounting evidence that high energy costs and a weakening economy are cutting deeply into fuel consumption.

Oil firms rushed to their offshore facilities and coastal refineries to check for damage on Sunday after Hurricane Ike's direct hit on the Houston energy hub left a quarter of US oil and refined fuel production idled and millions without power.

Early reports from emergency officials and oil companies indicated little or no severe damage to infrastructure -- signalling a possible quick recovery to production -- but firms warned that supply problems were likely in the near term.

The US Coast Guard said it had received reports of damage to offshore facilities in the Gulf of Mexico, but added details were still not available.

The US government said on Sunday it loaned a total of 309,000 barrels of strategic crude to two oil refiners having trouble procuring supplies in the storm's wake, ConocoPhillips and Placid Oil.

Even as oil prices fell on Sunday, gasoline prices at the US pumps rose more than six cents to nearly $3.80 a gallon, adding to a five cent increase on Sunday, as retail fuel supply concerns mounted in Ike's wake.

Chevron Corp said in a statement that it may not be possible for itself and other other manufacturers "to maintain normal supplies in the coming days", while Shell Oil said its 332,000 barrel per day joint venture refinery in Deer Park, Texas, requires repairs after damage from Hurricane Ike.

In Nigeria, the country's most powerful militant group on Sunday declared an "oil war" in the Niger Delta after two days of gunbattles with security forces in the world's eighth-largest oil exporter.