The traditionally southern, and Caribbean, hurricane season today found itself a little further north, hitting Wall Street and with it the very heart of New York's financial markets. Crude oil closed below $100 for the first time since February, in trading on Monday, falling more than $5 a barrel in the midst of the markets reacting to Lehman Brothers filing for bankruptcy and Merrill Lynch being bought out, all within the same day.
Furthermore, while fears about the future of the U.S. economy were sparking yet another sell-off, oil refineries were reporting little damage in the wake of Hurricane Ike, putting to rest fears over supply shortages of both crude and natural gas from the Gulf of Mexico.
Light, sweet crude for October delivery tumbled $5.47 to settle at $95.71 a barrel, oil’s first settlement below $100 since March 4, on the New York Mercantile Exchange (NYMEX). Prices made a landslide of $7.05 to $94.13 a barrel in the early morning pre-session electronic trading.
Gasoline for October delivery also fell by 21.18c, (7.7%), to $2.5578 a gallon in New York. The contract dropped as much as 24.46c, (8.8%), to $2.525 a gallon - the lowest since March 20.
The drop in petroleum futures helped prompt a 3.8% slump in the S&P GSCI Index of 24 commodities, on signs turmoil on Wall Street and the worsening credit crisis may weaken the global economy and cut demand for raw materials.
The price of crude oil has nearly gone full circle in the space of a year, surrendering the majority of its gains in a consistent two-month slide from the record levels of early July, when prices peaked at $147 a barrel.
The latest major sell-off began on Sunday, and accelerated Monday, as traders stomached a day of historic activity on Wall Street.
158-year-old Lehman Brothers Holdings, the U.S.’s fourth largest bank, filed for bankruptcy after failing to find a buyer and its market rival Merrill Lynch reached a deal of $44 billion to sell itself to Bank of America – the U.S.’s biggest consumer bank. New York stocks also plunged amid the new Wall Street landscape with the Dow Jones losing over 400 points in the afternoon trading alone.
Sarah Emerson, Managing Director of Energy Security Analysis – a consulting firm, said: "The collapse of a big Wall Street firm is an exclamation point that causes one to re-examine the direction the U.S. economy is going.
"Lehman's collapse and the Merrill sale underscore the possibility of a further economic slowdown," she added.
Meanwhile, Hurricane Ike has left the refineries along the Texas coast relatively unscathed. The International Energy Agency (IEA) said that it would release strategic oil reserve if necessary. The news was welcomed as it helped ease pressure from oil prices.
Adam Sieminski, Deutsche Bank's chief energy economist, in Washington, said: "It also appears that most refineries along the Gulf are OK." Some, "are already gearing up to restart, which has to be good news," he eagerly speculated.
