Oil Prices Fall As Refineries Resume Operations

NEW YORK (AP) - Oil prices closed below $100 a barrel for the
first time in six months Monday, tumbling more than $5 as the
demise of Lehman Brothers and the sale of Merrill Lynch fed worries
about the U.S. economy and sparked another dramatic sell-off.
Crude prices have now given up virtually all their gains for the
year, extending a steep, two-month slide from record levels above
$147 a barrel.
Oil's pullback - prices tumbled as much as $7 in a special
trading session Sunday - also came as early signs suggested that
Hurricane Ike delivered less damage than feared to the Gulf Coast
energy oil and gas infrastructure.
Light, sweet crude for October delivery fell $5.47 to settle at
$95.71 a barrel on the New York Mercantile Exchange - oil's first
settlement under $100 since March 4.
The latest sell-off in oil began Sunday and accelerated Monday
as traders digested a day of dramatic upheaval on Wall Street:
Lehman Brothers Holdings Inc., a 158-year-old investment bank,
filed for bankruptcy after failing to find a buyer and Merrill
Lynch & Co. agreed to be bought out by Bank of America Corp.
Lehman, Merrill and other big institutional investors were major
participants in the commodities boom of the past year, helping push
the price of oil, precious metals and grains to historic highs
until a slowing global economy helped bring a halt to the rally.
Analysts said investors feared that the upheaval in the
financial sector could trigger another round of commodities
liquidation - especially with Lehman likely to unwind its holdings.
Other investors may also unload commodities, fearing that the
deepening economic crisis will further reduce demand for energy and
raw materials futures.
"I think this is giving the bulls further reason to exit the
market," said Stephen Schork, an oil analyst and trader in
Villanova, Pa., who said the pullback could reflect Lehman or a
hedge fund selling.
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.
Other commodities traded mixed, with energy futures down but
gold, silver and most grains trading higher.
Investors were also awaiting damage assessments to Gulf energy
infrastructure after Ike's passage.
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. 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
The shutdown of Gulf refineries sent wholesale gasoline prices
spiking last week and pushed pump prices back above $4 a gallon in
South Carolina, Alabama, Georgia and other states. Gasoline
shortages were reported in Maryland, Virginia and North Caroline.
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."
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.
Associated Press Writers Louise Watt in London and Alex Kennedy
in Singapore contributed to this report.

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

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