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Crude Calms During Financial Storm

Crude Calms During Financial Storm

Melinda Peer09.15.08, 2:00 PM ET

With Hurricane Ike menacing oil production facilities along the Gulf Coast and Nigerian rebels waging war on Royal Dutch Shell in protest of its control of the country’s oil supply, the costly commodity has been in the cross-hairs–though you’d never know it by the price. Futures slid below $100 a barrel on Monday, dipping to lows not seen since February.

Oil prices have been lodged in the triple digits for most of the year as populous, energy-hungry emerging markets increasingly weigh on the world’s oil supply. Investors have also been driving up future prices by using oil as a hedge against the weak U.S. dollar.

But oil futures fell well below July’s record high of $147.27 a barrel on Monday as initial assessments of Hurricane Ike pronounced the storm less destructive to oil production facilities and pipelines than initially feared. Although many Texas-based refineries remained without power on Monday, key infrastructure in the area hadn’t been terribly damaged by the hurricane.

Light sweet crude for November delivery was trading at $97.12 a barrel in New York during Monday’s mid-morning trading session, down 4.1%, or by $4.13, from Friday’s settle price of $101.25 but up from a low of $94.41, reached early in the day’s trading session.

Crumbling crude prices also reflected fears that the energy demandwould suffer if U.S. economic weakness cracks global markets (see “Fear Of Global Weakness Puts Asia In Reverse“). The fear was especially poignant on Monday as Wall Street’s week got off to a tumultuous start on news that Bank of America (nyse: BAC – news people ) agreed to buy Merrill Lynch (nyse: MER – news – people ) for $50.0 billion and Lehman Brothers Holdings (nyse: LEH – news people ) declared bankruptcy (see ” Lehman Goes To The Wall“).

Monday’s news that Nigerian militants continued to attack security forces guarding Royal Dutch Shell’s energy facilities in Nigeria appeared to have little affect on crude prices during Monday’s trading session.

The United States Oil Fund (amex: USO – news – people exchange-traded fund lost $3.22, or 4.0%, at $78.27 and the Energy Select Sector SPDR (amex: XLE – news – people ) ETF shed $2.91, or 4.2%, to $66.02.

Reuters contributed to this article.

http://www.forbes.com/commodities/2008/09/15/oil-hurricane-ike-markets-commodities-cx_mp_0915markets21.html

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