(UPDATE) Oil dives $3, hammered for second day by bank woes
By Annika Breidthardt
Reuters
First Posted 11:32:00 09/16/2008
Filed Under: Economy, Business & Finance
SINGAPORE -- Oil tumbled by as much as 4.0 percent to a seven-month low on Tuesday, in free fall for a second day as Lehman Brothers' collapse made investors ditch oil for safe-haven assets, and on fears the credit crisis will hurt the real economy.
Reports that hurricane Ike caused minor damage to US oil platforms and refineries also weighed on prices, adding to the previous session's more than $5.00-fall and over 37-percent decline from its peak above $147 in mid-July.
US light crude for October delivery which fell as much as $4.15 at one point, was down $3.22 at $92.49 a barrel by 0630 GMT, tumbling in concert with everything from Asian stock markets to grains. The yen edged up versus the dollar on widespread risk aversion in the wake of Wall Street's turmoil.
London Brent crude fell $3.52 to $90.72 a barrel at the same time, having slumped earlier by as much as $4.44 to touch its lowest since Feb. 8.
"It's a bit of panic in the markets," said Jonathan Kornafel, Asis director at US-based options trader Hudons Capital Energy. "If the economic turmoil continues, demand will continue to drop."
On Monday, Wall Street had its worst day since markets reopened after the September 11 attacks, with investors fleeing to safer havens such as gold.
Lehman Brothers' bankruptcy, the sale of Merrill Lynch and the struggle of American International Group all stirred fears about the US financial sector's stability and the outlook for the global economy.
And on Tuesday, the three top global ratings agencies slashed their rating on AIG by at least two notches, adding more downgrades could follow.
"If AIG tanks, that will be the big one. AIG has more to do with the oil price right now than the Saudis do," said Larry Grace, an analyst at Kim Eng Securities in Hong Kong.
Following crude oil's sharp losses -- down 20 percent since the start of the month -- technical analysts now focused on support below $90 a barrel and into the $85-to-$80-a-barrel region for the next leg lower.
RESTARTING AFTER IKE
A big chunk of US energy production shut by hurricane Ike could restart within a week, with the only reports of damage to refineries so far included Shell's Deer Park Plant and ConocoPhillips' Alliance refinery.
Nigerian militants on Tuesday launched fresh attacks on a Royal Dutch Shell oil pipeline and Chevron-operated oilfield in the Nigerian Delta, as its "oil war" against oil companies and security forces entered a fourth day, but that did little to lift oil futures
The focus later on Tuesday shifts to the US Federal Reserve, which is expected by many analysts to keep interest rates on hold, although after Monday's Lehman shockwaves investors are pricing in a significant chance of a quarter-point rate cut aimed at calming roiled markets.
The result of its meeting is expected to be announced at around 2:15 p.m. EDT (1815 GMT).
The market is also looking ahead to Wednesday's US oil stocks data, expected to show a 3.4 million barrel draw down in crude inventories, a two-million barrel drop in distillate supplies and a four-million barrel decline in gasoline stocks.
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