LONDON (Reuters) – Oil tumbled to $98 a barrel on Monday on signs Hurricane Ike may have spared key U.S. energy infrastructure and turmoil in the U.S. financial system fanned global economic concerns.
The ruptured U.S. financial system faces an unprecedented shake up as Lehman Brothers filed for bankruptcy protection and Bank of America agreed to buy Merrill Lynch, stirring concerns that mounting economic problems will slow oil demand further.
U.S. crude fell $3.18 to $98.00 a barrel by 4:34 a.m. EDT to fresh six-month lows after a special trading session on Sunday held because of Hurricane Ike. U.S. oil had dropped below $100 briefly on Friday for the first time since early April.
London Brent crude fell $2.95 to $94.63 a barrel.
Energy firms rushed to 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 U.S. 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 — signaling a possible quick recovery to production — though near-term supply problems were expected.
The U.S. government said it loaned 309,000 barrels of strategic crude to ConocoPhillips and Placid Oil, which had trouble with supplies after the storm.
“The sell-off is partly because Hurricane Ike hasn’t done significant structural damage to oil facilities as well as growing concerns about the economy,” said David Moore, commodities strategist for Commonwealth Bank of Australia.
“It has been quite a spectacular turn of events at Lehman and Merrill and the stresses in the financial system are sparking concerns about economic outlook and how that will weigh on global energy demand.”
On a black Sunday for Wall Street, 10 of the world’s biggest banks also agreed to establish a $70 billion emergency fund while the Federal Reserve said for the first time it will accept stocks in exchange for cash loans.
Insurer American International Group asked the Fed for a lifeline, according to news report.
High fuel prices and wider economic problems have dragged down oil demand in the United States and other large consumer nations, sending crude prices from a record high over $147 a barrel in July.
Militants in OPEC member Nigeria attacked a Royal Dutch Shell oil installation on Monday in a third day of heavy fighting with security forces.