Oil prices plummeted Tuesday, falling briefly below $92 US a barrel amid market fears that the U.S. credit crisis which brought down Lehman Brothers will drag on global economic growth and restrain demand for crude.
OPEC's production cut of 520,000 barrels a day earlier this month has failed to stem the decline. The 13-country group said oil demand in the United States fell by 800,000 barrels a day last month due to the slow economy and high prices.
The monthly report from the Organization of Petroleum Exporting Countries also said global appetite for crude has grown by 900,000 barrels a day this year — 100,000 barrels less than estimated.
For next year, the report predicted that world demand will grow by a further 900,000 barrels a day, to 87.7 million barrels per day.
Light sweet crude for October delivery was down $2.57 to $93.14 a barrel in electronic trading on the New York Mercantile Exchange. It briefly fell as low as $91.54.
On Monday, the contract dropped $5.47 to settle at $95.71, the first time oil had closed below $100 since March 4.
"People are selling everything. It's a bit of panic," said Jonathan Kornafel, Asia director for market maker Hudson Capital Energy in Singapore.
"We may not have seen the end of demand destruction. It's scary what's going on economic-wise right now, and that's why oil is selling off."
In a stunning turn of events Monday on Wall Street, Lehman Brothers Holdings Inc., a 158-year-old investment bank, filed for bankruptcy after failing to find a buyer, while Merrill Lynch & Co. agreed to be bought by Bank of America Corp.
Vienna's JBC Energy linked Lehman Brothers' demise with the steep fall in oil prices, saying the investment bank "was said to be a big player in oil markets, and its bankruptcy could explain the big sell-off yesterday."
The Dow Jones industrial average lost 504 points, or 4.4 per cent, on Monday in the worst point drop since the September 2001 terrorist attacks, and Asian stock markets continued tumbling Tuesday.
Crude fell despite an attack by militants on an oil-pumping station run by Royal Dutch Shell PLC in southern Nigeria. Shell said one guard died and four were wounded in the battle, which prompted an evacuation of some facilities in the region.
"When you start to see the market not paying attention to what's going on around it, the fundamentals are not being closely looked at," Kornafel said.
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