Crude Oil Tumbles as Wall Street Turmoil Adds to Demand Concern

By Christian Schmollinger and Grant Smith
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Sept. 16 (Bloomberg) -- Crude oil tumbled, dipping below $92 a barrel in the biggest two-day drop in almost four years, on concern that turmoil on Wall Street may weaken the global economy and reduce demand.

Oil fell as much as 4.3 percent today after Lehman Brothers Holdings Inc., once the fourth-largest U.S. investment bank, yesterday sought bankruptcy protection, sending U.S. stocks to their steepest drop since the September 2001 terrorist attacks. Gold fell for the first day in three.

``The fear is that the sharp deterioration of the banking crisis in the U.S. will spread to the real economy and demand for oil,'' said Carsten Fritsch, a Commerzbank AG analyst in Frankfurt. ``There's a good possibility prices will fall further before they stabilize.''

Crude oil for October delivery fell as much as $4.17, or 4.4 percent, to $91.54 a barrel, the lowest intraday price since Feb. 11. It was at $92.11 at 9:05 a.m. London time on the New York Mercantile Exchange.

Oil has declined 4.4 percent this year and dropped 38 percent from the record $147.27 a barrel reached on July 11.

Gasoline for October delivery fell for a second day, declining as much as 8.52 cents, or 3.3 percent, to $2.4762 a gallon in New York.

``Prices were too high because we're looking at a recession, we're looking at demand dropping,'' Peter Beutel, president of energy consultants Cameron Hanover Inc. in Stamford, Connecticut, said in an interview with Bloomberg Television. ``Oil is not a safe haven.''

Lehman Suspended

CME Group Inc., the world's largest futures market, and its Nymex unit, said Lehman ``continues to meet all of its obligations'' and is operating as normal. Options Clearing Corp., which guarantees all trades in the $1.6 trillion U.S. options market, also said Lehman remains in good standing.

Lehman Brothers was suspended from energy and commodities trading in London.

The plunge in oil, cotton and copper led to the Reuters/Jefferies CRB Index of 19 commodities erasing its gains for the year. The CRB index fell 3.3 percent to 348.26 yesterday, down 2.9 percent for the year.

Gold declined as some investors sold the precious metal to raise cash after U.S. stocks tumbled.

Gold for immediate delivery fell 1.3 percent to $776.45 an ounce at 8:50 a.m. in London after earlier rising to $788.10 an ounce, the highest in a week. Silver for immediate delivery dropped 2.8 percent to $10.81 an ounce.

Pessimistic Sentiment

``We're seeing extremely pessimistic investor sentiment on the backdrop of the further deterioration of the global economic outlook,'' Yingxi Yu, a commodity analyst with Barclays Capital in Singapore, said in an interview with Bloomberg Television.

Brent crude oil for November settlement fell as much as $4.44, or 4.7 percent, to $89.80 a barrel on London's ICE Futures Europe exchange. It was at $91.12 a barrel at 8:53 a.m. London time.

Prices have dropped 14 straight days, the longest stretch since Brent futures were introduced in 1988.

Texas oil refiners may need weeks to restore normal operations as utilities struggle to restore power after Hurricane Ike swept through the region.

Exxon Mobil Corp., the world's biggest oil company, said its Beaumont, Texas, refinery took the ``most serious hit'' of its plants, from a wall of water pushed ashore by Ike. Marathon Oil Corp.'s Texas City, Texas, plant is without power and water.

Production Idled

A total of 14 Texas and Louisiana refineries, with combined crude-oil processing capacity of 3.57 million barrels a day, are shut because of Ike, the U.S. Energy Department said yesterday.

The International Energy Agency, an energy adviser to 27 industrialized countries, said it is analyzing the impact of Ike on oil, gas and refinery output and may release emergency stockpiles if called upon. The IEA coordinated the release of crude oil and fuel supplies after Hurricanes Katrina and Rita struck the U.S. Gulf Coast in 2005.

U.S. crude-oil and fuel inventories probably fell last week because of Ike, a Bloomberg News survey of analysts showed. The Energy Department is scheduled to release its weekly petroleum supply report on Sept. 17.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.; Grant Smith in London at gsmith52@bloomberg.net.