First close for oil under $100 US since March

Oil prices closed below $100 US 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 per cent 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 per cent of natural gas output remained shut as of Sunday, according to the U.S. Minerals Management Service.

The shutdown of Gulf refineries sent wholesale gasoline prices spiking last week.

Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service in Wall, N.J., said supply shortages caused by Ike and Gustav three weeks ago should last at least another two weeks.