Oil Declines Below $97 as Market Turmoil May Slow Fuel Demand

By Christian Schmollinger

Sept. 18 (Bloomberg) -- Crude oil declined in New York, paring yesterday's $6-a-barrel jump, on concern the fallout from the global credit crunch may lead to an economic slowdown, limiting fuel demand.

U.S. fuel demand the past four weeks was down 4.4 percent from a year earlier, the Energy Department said yesterday. Asian stock markets tumbled to their lowest in three years as investors were unconvinced an $85 billion bailout of American Insurance Group Inc. would ease the financial crisis and speculation that more banking firms might collapse.

``The concerns that these bank failures may lead to a worldwide global recession, negatively impacting oil demand, has put downward pressure on prices,'' said Victor Shum, a senior principal at consultants Purvin & Gertz Inc. in Singapore. ``You can't blame investors for being risk averse.''

Oil for October delivery fell as much as 96 cents, or 1 percent, to $96.20 a barrel on the New York Mercantile Exchange. It was trading at $96.21 at 12:35 p.m. in Singapore. It earlier rose as much as 98 cents, or 1 percent, to $98.14 a barrel.

Yesterday, oil rose $6.01, or 6.6 percent, to $97.16 a barrel, the biggest one-day gain since June 6. Oil futures tumbled more than $10 a barrel in the first two days of the week on concern financial-market disruptions may weaken the global economy and cut fuel consumption.

Brent crude oil for November settlement fell as much as 93 cents, or 1 percent, to $93.91 a barrel at 12:37 p.m. Singapore time on London's ICE Futures Europe exchange. It earlier rose as much as 67 cents, or 0.7 percent, to $95.51 a barrel.

Banks Decline

Macquarie Group Ltd., Australia's largest investment bank, plunged 17 percent after Goldman Sachs Group Inc. and Morgan Stanley, the only remaining independent brokerages on Wall Street, fell the most ever.

The MSCI Asia Pacific Index dropped 3.5 percent to 106.74 as of 12:00 p.m. in Tokyo, the lowest since September 2005.

More than $19 trillion has been wiped off global stock market value since a high on Oct. 31 as the worst U.S. housing recession since the Great Depression and a resulting global credit crisis slowed the world economy. This week, Lehman Brothers Holdings Inc. filed for bankruptcy and the U.S. government had to take over American International Group Inc.

U.S. stocks slumped to the lowest in three years yesterday, with the Standard & Poor's 500 Index sliding 4.7 percent.

Fuel Consumption Falls

Prices were supported yesterday after a U.S. government report showed that crude oil stockpiles dropped the most since May because of disruptions from Hurricane Ike.

U.S. crude-oil stockpiles fell 6.33 million barrels to 291.7 million barrels last week, according to the Energy Department. It was the fourth-straight inventory decline. A drop of 3.5 million barrels was forecast, according to the median of responses by 11 analysts surveyed by Bloomberg News.

The total products supplied by refiners for the past four weeks averaged 19.9 million barrels a day. Gasoline consumption averaged 9.21 million barrels a day over the period, down 2.6 percent.

Prices were also supported by concerns over supplies as Nigerian militants have stepped up attacks on oil companies.

Nigeria lost 280,000 barrels daily of its crude output to attacks launched by armed militants in the Niger Delta oil region in the past five days, bringing currently shut output to about one million barrels a day, the state-run oil company said.

``Current shut-in production stands at about one million barrels a day, but it's not necessarily due to militant attacks,'' Levi Ajuonuma, spokesman for the Nigerian National Petroleum Corp. said by phone from the country's capital, Abuja, today. ``Only 28 percent is because of militant action.''

The Movement for the Emancipation of the Niger Delta, the main militant group in the oil region, said it declared an ``oil war'' in the southern delta that accounts for nearly all of the country's oil after the military launched an offensive on Sept. 13 on its positions.

In the last five days the militant group, also known as MEND, has attacked pipelines and oil pumping stations run by units of Royal Dutch Shell Plc, Chevron Corp. and Eni SpA.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.