Oil plummets as Ike largely spares energy output - WMC Action News 5 - Memphis, Tennessee

Oil plummets as Ike largely spares energy output

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 $4.87, or 4.82 percent, to $96.38 a barrel on the New York Mercantile Exchange, after earlier dropping to $94.41, the lowest level since Feb. 14. A close at that level would be oil's first settlement under $100 since March 4.

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 damage to energy infrastructure 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," 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, virtually all oil production in the Gulf and about 92 percent of natural gas output remained shut-in as of Sunday, according to the U.S. Minerals Management Service.

The shutdown of Gulf refineries sent wholesale gasoline prices spiking last week and pushed pump prices back above $4 a gallon in Alabama, Georgia, Michigan and other states.

On Monday, a gallon of regular rose half a penny overnight to a new national average of $3.842 - up 16.7 cents from Friday, according to auto club AAA, the Oil Price Information Service and Wright Express.

Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service in Wall, N.J., said supply shortages caused by Ike and Hurricane Gustav three weeks ago should last at least another two weeks.

"That means we're looking at close to $4 a gallon for the rest of September," Kloza said. "People are going to observe more of this disconnect where retail prices move higher even though crude oil is trading below $100 a barrel."

Investors also watched the 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.

In other Nymex trading, heating oil futures fell 19.71 cents to $2.742 a gallon, while gasoline prices dropped 17.79 cents to $2.5917 a gallon. Natural gas for October delivery fell 17 cents to $7.196 per 1,000 cubic feet.

In London, October Brent crude fell $5.47 to $92.11 a barrel on the ICE Futures exchange.

(Copyright 2008 by The Associated Press.  All Rights Reserved.)

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