Oil plummets as Ike largely spares energy output

Published 8:40 am Monday, September 15, 2008

NEW YORK (AP) – Oil prices plunged to a seven-month low Monday as the Gulf Coast energy infrastructure appeared relatively unharmed after Hurricane Ike and traders bet that Lehman Brothers’ bankruptcy could ignite a massive liquidation of commodities.

Light, sweet crude for November delivery fell $5.67 to $95.64 a barrel in pre-market trading on the New York Mercantile Exchange, after earlier dropping to $94.41, the lowest level since Feb. 14.

Crude has fallen more than $50 — or 35 percent — from its all-time trading record of $147.27 reached July 11 as a global economic slowdown continues to weigh on demand for energy.

U.S. officials said Sunday that Ike destroyed at least 10 oil and gas platforms and damaged pipelines in the Gulf of Mexico. But that represents only a small portion of the 3,800 production platforms in the Gulf and pales in comparison to the catastrophic damaged doled out by Hurricanes Katrina and Rita three years ago.

“Fears of widespread refinery damage have been allayed considerably and a number of facilities are coming back up in a timely fashion, so that’s pressuring energy prices across the board,” said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill.

Still, power outages along the Gulf Coast were slowing efforts to restart some refineries. Valero Energy Corp. said only one of its closed refineries had power, and spokesman Bill Day said he couldn’t estimated how long it would take to resume production.

Meanwhile, investors also watched the fast-unfolding events surrounding Lehman Brothers Holdings Inc. Analysts said the 158-year-old bank’s demise — along with the planned sale of Merrill Lynch & Co. to Bank of America Corp. — could prompt another sell-off in commodities as the banks and investors race to unwind positions on fears that a deepening economic crisis will further erode demand for raw materials.

“That would only add to the bearish sentiment,” Ritterbusch said. “A lot of these companies helped fuel the oil price advance and now these entities are nowhere to be seen right now.”

Also adding to the selling pressure Monday was a slightly stronger dollar. A rising greenback encourages investors to unload commodities bought as a hedge against inflation or weakness in the U.S. currency.

Oil fell despite reports that militants have launched another attack Nigeria’s oil infrastructure in a third day of violence.

Lt. Col. Sagir Musa of the Nigerian military task force in the southern oil delta region said militants in speedboats attacked troops at a Royal Dutch Shell PLC oil-pumping station early Monday. The fighters arrived in about 10 speed boats and detonated dynamite and other explosives during the battle.

Musa said it was possible that the so-called flow station was damaged during the attack. Shell officials said they were investigating reports of attacks on their facilities but could give no further details.

Investors are also now turning their attention toward falling oil demand in the U.S., Europe and Japan as slowing economic growth threatens to undermine consumer spending.

“Market sentiment is decidedly bearish, with all these concerns about developed countries going into recession or a serious slowdown impacting oil demand,” Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore.

In other Nymex trading, heating oil futures fell 17.01 cents to $2.769 a gallon, while gasoline prices dropped 16.25 cents to $2.6071 a gallon. Natural gas for October delivery fell 11.6 cents to $7.25 per 1,000 cubic feet.

In London, October Brent crude fell $4.53 to $93.05 a barrel on the ICE Futures exchange.