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Oil fell over 4 per cent to a seven-month low today, sliding for a second day as Lehman Brothers' collapse raised concern the credit crisis will hurt the economy and undermine fuel demand.
Reports that US oil infrastructure had escaped major damage from Hurricane Ike also weighed on markets, which fell more than $5 yesterday after Lehman Brothers sought bankruptcy protection.
US crude traded down $4.30 to $91.41 a barrel by 12.33pm, just off a seven-month low of $91.11 a barrel earlier. Brent crude fell $4.54 to $89.70 a barrel.
“If the economic turmoil continues, demand will continue to drop,” said Jonathan Kornafel, Asia Director at US-based options trader Hudson Capital Energy. “It's a bit of panic in the markets.”
Slowing demand in the United States and other top consumer nations has sent crude prices tumbling from record highs over $147 a barrel in July.
Yesterday marked the worst day on Wall Street since markets reopened after the September 11th attacks, with investors fleeing to safer havens such as gold after the news on Lehman and the sale of Merrill Lynch.
Growing problems at insurer American International Group added to fears about the financial sector's stability and the outlook for the global economy.
“If AIG tanks, that will be the big one. AIG has more to do with the oil price right now than the Saudis do," said Larry Grace, an analyst at Kim Eng Securities in Hong Kong.
