Crude Oil Tumbles as Wall Street Turmoil Adds to Demand Concern

By Mark Shenk

Sept. 16 (Bloomberg) -- Crude oil tumbled below $91 a barrel, taking its two-day decline to more than $10, on concern that turmoil on Wall Street may weaken the global economy and cut fuel demand.

Oil fell more than 5 percent today after American International Group Inc. had its credit rating cut, threatening efforts to raise funds to keep the insurer afloat, and Lehman Brothers Holdings Inc. yesterday sought bankruptcy protection.

``Asset prices are taking a hit, be it futures or stocks, because people need to raise cash,'' said Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. in New York. ``The market fundamentals don't justify prices here, but that doesn't matter in this environment.''


Crude oil for October delivery fell $3.84, or 4 percent, to $91.87 a barrel at 9:53 a.m. on the New York Mercantile Exchange. Futures dropped as much as $5.16, or 5.4 percent, to $90.55 a barrel, the lowest since Feb. 8.

Oil in New York has declined 4.3 percent this year and dropped 38 percent from the record $147.27 a barrel reached on July 11.

Gasoline for October delivery tumbled 9.89 cents, or 3.9 percent, to $2.4625 a gallon in New York. The contract dropped as low as $2.4480 a gallon, the lowest since Feb. 14.

The Organization of Petroleum Exporting Countries, supplier of more than 40 percent of the world's oil, lowered its forecast for 2009 oil demand to 87.66 million barrels a day because of the global economic slowdown.

OPEC Decision

OPEC needs to study the effects of its production cuts before considering an emergency meeting, Iran's OPEC governor said today.

``Ministers need at least September and October data to see the impact of OPEC's decision on the market,'' Mohammad Ali Khatibi said in a phone interview from Tehran today. ``We cannot be in a hurry; an emergency meeting would be a judgment in a rush.''

OPEC agreed at its meeting in Vienna to a limit for 11 members of 28.8 million barrels a day, about 500,000 barrels a day lower than the group's July output. The group is scheduled to meet on Dec. 17 in Oran, Algeria.

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

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 tomorrow.

Intertwined Markets

``There's been a hurricane, attacks in Nigeria and the inventory data will be very bullish due to shipping disruptions and refinery closures, and yet we're testing $90,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``This shows that energy became intertwined with financial markets. Now that's coming undone.''

Brent crude oil for November settlement declined $4.77, or 5.1 percent, to $89.47 a barrel on London's ICE Futures Europe exchange. Futures fell to $88.99 today, the lowest since Feb 8. Prices have dropped 14 straight days, the longest stretch since the contract was introduced in 1988.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.