Oil Prices Continue Precipitous Drop

Falls $10 A Barrel In Two-Day Slide Amid Market Uncertainty; Settles Below $92

(AP)  Oil prices extended their retreat Tuesday, shedding $10 a barrel in a violent, two-day slide as tumult on Wall Street dims hopes for a swift economic recovery and signals another drop in U.S. energy demand.

Light, sweet crude for October delivery fell $4.56 to settle at $91.15 a barrel on the New York Mercantile Exchange, after earlier dipping to $90.51, its lowest level since Feb. 8. On Monday, prices closed below $100 for the first time in six months, shedding more than $5 and wiping out all of oil's gains for the year.

In London, November Brent crude fell $5.02 to settle at $89.22 a barrel on the ICE Futures exchange, after earlier dipping to $88.90.

Crude has fallen about $55 - or 37 percent - since shooting above $147 on July 11.

As uncertainty grips Wall Street, evidence mounted that U.S. consumers and businesses were bracing for a protracted economic downturn that should guarantee more of the money-saving energy conservation measures of the past year: Americans will cut back on driving, airlines will keep fewer planes in the air and U.S. manufacturers will be shipping fewer products. That in turn was expected to keep crude prices down.

"The economic slowdown is completely unavoidable now and people will be driving less, trucking less and buying less," said James Cordier, president of Tampa, Florida-based trading firms Liberty Trading Group and OptionSellers.com. "Energy consumption will fall dramatically."

Oil's steep correction comes as traders were riveted by rapidly unfolding events on Wall Street. Fears rose Tuesday about the health of insurance giant American International Group Inc. after several ratings agencies reduced their ratings on the company. That amplified worries of more turmoil after Lehman Brothers Holdings Inc. filed for bankruptcy and Merrill Lynch & Co. was bought by Bank of America Corp. in a rush sale intended to save the troubled company.

Analysts say another big round of commodities liquidation may be in the offing if Lehman, a major player in commodities, moves to unwind its positions to raise capital. Others big banks, institutional investors and hedge funds may follow suit on worries that the downward momentum on oil and other commodities may have reached a tipping point where prices will not rebound.

"It's like a snowball effect," said Cordier. "The unwinding of all this debt is getting oil prices to go to these levels much quicker than people thought possible."

Also pressuring crude prices was a decision Tuesday by the Federal Reserve to hold interest rates steady. Investors viewed the move as another drag on oil; lower interest rates would likely have depressed the dollar, potentially sending the price of oil and other commodities higher if investors had shifted money into hard assets to hedge against inflation.

But analysts said the biggest weight on oil prices was the slumping economy and continuing demand destruction. On Tuesday, computer maker Dell Inc. said it sees "further softening" in demand for information technology products around the world. That means the company will likely be shipping less products around the globe, further reducing demand for fuel.

Meanwhile, pump prices edged higher Tuesday due to Gulf Coast refinery shutdowns after Hurricane Ike slammed into Texas over the weekend. A gallon of regular jumped more than a penny overnight to a new national average of $3.854, according to auto club AAA, the Oil Price Information Service and Wright Express. Prices topped $4 a gallon in parts of Alabama, Illinois, Kentucky and Tennessee.

Virtually all oil production in the Gulf and about 94 percent of natural gas output remained shut down after the passage of Ike and Hurricane Gustav last month, according to the U.S. Minerals Management Service.

Crude's decline has come despite ongoing tensions with Russia, militant attacks in Nigeria, saber-rattling by Iran and the loss of 25 percent of U.S. refining capacity due to Ike - bullish events that likely would have sent prices skyrocketing only months ago.

"I guess the market was telling us it never belonged at the $100 level in the first place and got there on a lot of hype," said Peter Beutel, energy analyst at Cameron Hanover, New Canaan, Connecticut.

In other Nymex trading, heating oil futures fell 7.15 cents to settle at $2.7197 a gallon, while gasoline prices dropped 16.06 cents to settle at $2.4008 a gallon. Natural gas for October delivery fell 9.5 cents to settle at $7.279 per 1,000 cubic feet.

[petro49l]

The Saudis told George Bush to increase the fighting in Afghanistan. They need a good reason to raise oil prices. They have already reduced petroleum output from the Persian gulf. Bush has accepted more bribes to create tension in the Middle East. He promises the killings of additional Arab Peasants to escalate war with Al Qada and potentially Pakistan.

[csp66]

LOL, this too shall pass..... Brace yourself for $6, $10, maybe even $15/gallon over the next couple of years. Saw this good advice posted on MarketWatch:

My two cents: Stop buying c*** that you don''t absolutely need in order to survive. If you can find a buyer, dump that wide screen TV, boat, extra car, or anything else that uses a lot of electricity, gas or water. Get out of debt with the money you save by not buying c***. Dig a garden in your back yard, invest in seeds. Be nice to your neighbors. Consider sharing your home with other family members. Consider a few rainbarrels, maybe a windmill/generator or a few solar panels before demand makes them unaffordable. Sleeping bags are a good cheap way to stay warm in the winter. The shelf life of canned tuna is several years. Peanut butter doesn''t really need to be refrigerated. Acorns from white oaks are supposedly edible. Lose weight and exercise. Learn a new trade that involves work with your hands, maybe one that hasn''t been needed for quite some time.

[csp66]

Many places around the US are finding plastic bags on the all the gas pumps. Entire counties and cities with nothing but diesel.

[observer2020]

Well then why are gas prices continuing to rise? Over $.40 in the last 4 days.

[beehive21-2009]

Why are the head line wrong,? Oil increased today 6.00 ?

[bob5ford]

Oil climbed almost $5 today. Gas is at all time highs, over $5 a gallon in a lot of places. When oil was $145 gas was only $3.89. Anyone want to venture a guess why? I love the government saying conserve and then threatening to raise gas taxes because the revenue is down. Isn''t government wonderful? Just wait til Obama gets in if you think it''s bad now!!!

[yongamerica]

What''s up with this. The price of gasoline is increased the same day the price of oil increases, yet the price of gas stays the same or still goes up when the price of oil drops; even when the price of oil drops significantly.

[beehive21-2009]

Watch, Big Oil is in the back rooms right now,telling Presidents of various countries,too, rattle the sabers,rattle the sabers,start a conflict,so,we can raise the price of oil ? Don''t think the greedy pigs will go away quietly.

[txpatriot4us]

I%u2019ll DEBATE ANYBODY ON WHY GEORGE W. BUSH SHOULD BE PRESIDENT ANOTHER 8 YEARS.
Posted by twalk1122

Sadly your arguments are dillusional and are obviously McSame "planted" talking points. Poor thing we will all keep your insanity in mind and consider the source.

[txpatriot4us]

For 8 years we have been ripped of by Bush pals in Oil. Now with an election at hand the price of Oil drops. And the RepubliCONS will try to claim "see we did it"....what a pile of crappola. Kick the Bums Out!