Oil, Gasoline Tumble as Lehman Collapse Raises Demand Concern

By Mark Shenk

Sept. 15 (Bloomberg) -- Crude oil fell to a seven-month low and gasoline tumbled as Lehman Brothers Holdings Inc. filed for bankruptcy and refineries along the Gulf of Mexico escaped major damage from Hurricane Ike.

Metals and crops also dropped, prompting a 5 percent slump in the S&P GSCI Index of 24 commodities, on speculation turmoil on Wall Street and the worsening credit crisis may weaken the global economy, cutting demand for raw materials. Refiners said preparations are under way to restart plants in the Houston area, home to more than 20 percent of U.S. refining capacity.

``There are grave concerns about financial stocks and what their weakness will mean for the real economy and energy demand,'' said Adam Sieminski, Deutsche Bank's chief energy economist, in Washington. ``It also appears that most refineries along the Gulf are OK.'' Some ``are already gearing up to restart, which has to be good news.''

Crude oil for October delivery fell $5.83, or 5.8 percent, to $95.35 a barrel at 9:05 a.m. on the New York Mercantile Exchange. Futures dropped as much as $7.05, or 7 percent, to $94.13 a barrel, the lowest since Feb. 14.

Gasoline for October delivery tumbled 20.34 cents, or 7.3 percent, to $2.5662 a gallon in New York. The contract dropped as much as 24.46 cents, or 8.8 percent, to $2.525 a gallon, the lowest since March 20.

Lehman Brothers was suspended from energy and commodities trading in London after Europe's biggest clearing house declared the company a defaulter.

The London Metal Exchange, the world's largest copper bourse, the Liffe commodities exchange, and Intercontinental Exchange Inc.'s ICE Futures Europe, part of the second-biggest energy exchange, all suspended Lehman today. LCH.Clearnet Group Ltd., which clears trades, declared Lehman's European subsidiary a defaulter.

13 Days

Brent crude oil for October settlement declined $5.62, or 5.8 percent, to $91.96 a barrel on the ICE exchange. Futures touched $91.17, the lowest since Feb. 11. Prices have dropped 13 straight days, the longest stretch since the contract was introduced in 1988.

Valero Energy Corp., the largest U.S. refiner, said it found ``no significant structural damage'' at three Houston-area refineries shut before the storm.

Exxon Mobil Corp. said its Baytown refinery, the largest in the U.S., has power, and damage appears ``limited.'' It is checking its Beaumont, Texas, plant, which is without power. Royal Dutch Shell Plc said it was assessing its Texas plants and that it was too early to determine when they will restart.

``With most of the Gulf Coast shut down, there will be less demand, which is what occurred after Katrina,'' said Tom Bentz, senior energy analyst at BNP Paribas in New York. ``Prices went beyond what the fundamentals justified on the upside and the same may occur as we move lower.''

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