Tuesday September 16, 2008, The Star online
SINGAPORE: Oil prices plummeted Tuesday in Asia, falling below US$92 a barrel as investors feared the U.S. credit crisis that brought down brokerage giant Lehman Brothers will drag on global economic growth and restrain demand for crude.
Light, sweet crude for October delivery tumbled US$3.77 to US$91.94 a barrel in electronic trading on the New York Mercantile Exchange midday in Singapore.
The contract fell US$5.47 overnight to settle at US$95.71, the first time oil closed below US$100 since March 4.
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 and Merrill Lynch & Co. agreed to be bought out by Bank of America Corp.
"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 going on economic-wise right now, and that's why oil is selling off.''
The Dow Jones industrials lost 504 points, or 4.4 percent, on Monday in their worst point drop since the September 2001 terrorist attacks, and Asian stock markets tumbled Tuesday.
U.S. Treasury Secretary Henry Paulson tried to calm markets, saying the American people can remain confident in the "soundness and resilience in the American financial system.''
Crude fell despite an attack by militants on an oil-pumping station operated by the local unit of Royal Dutch Shell PLC in southern Nigeria with dynamite and other explosives Monday which killed at least one guard in the third day of heavy battles between the armed forces and militants fighters.
Shell said one guard died and four others suffered injuries in the battle, which prompted an evacuation of some facilities in the southern region.
No details were given about any effect on oil production.
The Movement for the Emancipation of the Niger Delta, the region's main militant group, claimed responsibility for the attack. Since it emerged nearly three years ago, the group has mostly focused on hobbling Nigeria's oil industry, bombing pipelines in hopes of forcing the federal government to send more revenues to the impoverished oil-producing south.
"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.
"This drop since mid-July seems a bit overdone.''
Crude has fallen about US$55 - or 37 percent - from its all-time trading record of US$147.27 reached July 11.
In other Nymex trading, heating oil futures fell 8.08 cents to US$2.7104 a gallon, while gasoline prices dropped 7.0 cents to US$2.4914 a gallon.
Natural gas for October delivery fell 8.4 cents to US$7.29 per 1,000 cubic feet.
In London, October Brent crude fell US$2.33 to US$90.27 a barrel on the ICE Futures exchange.
Brazil declines Saudi invitation to join OPEC
Meanwhile in Sao Paulo Brazil declined a recent invitation from Saudi Arabia to join OPEC, citing plans to refine, not export, crude oil from its recently discovered deep water reserves, top energy officials said Monday. (Tuesday monring Malaysian time).
Mines and Energy Minister Edison Lobao said Brazil determined it doesn't need the cartel, because it plans to boost oil income by refining crude into products like gasoline for export abroad, the state's Agencia Brasil news agency reported.
Paulo Roberto Costa, a high-ranking executive with Brazil's state-run Petroleo Brasileiro SA oil company, confirmed the government had decided not to join OPEC.
"Brazil won't be a big exporter of oil, that's already defined,'' Costa told Agencia Brasil at the Rio Oil & Gas Expo 2008 industry conference in Rio de Janeiro.
"Brazil was invited to participate in OPEC and did not accept because our priority is refining here and exporting derivatives.''
Analysts say the reserves - found in the last year thousands of meters (feet) under the ocean floor and several hundred kilometers (miles) off the Rio de Janeiro coast - may contain 55 billion barrels of oil, enough to catapult Brazil to superpower oil status.
By refining its own oil, instead of shipping it abroad to be refined, Lobao said Brazil will generate more money and jobs at home.
The country is undergoing an economic boom but still has one of the world's deepest divides between rich and poor.
Under orders from President Luiz Inacio Lula da Silva, a commission of government ministers is examining possible changes in the nation's oil law.
Silva insists profits from the new oil discoveries be used to fight poverty and improve education.
Agencia Brasil said the Saudi OPEC invite came at a "recent'' meeting of oil producing nations, but gave no other details. OPEC met last week in Vienna.
Brazil last month declined an invitation extended by Iran to join the Organization of Petroleum Exporting Countries. Lobao did not specify why at the time, saying only that Brazil had "other priorities.''
Also Monday, Petrobras said it awarded contracts to build 10 new floating production, storage and offloading units to develop its new fields.
Petrobras will rent two units to produce 100,000 barrels a day by 2014, and will build eight others to produce up to 120,000 barrels a day by 2016, according to a company statement.
A spokesman declined to give disclose how much the contracts were worth or with whom they'd been signed.
U.S. traded shares of Petrobras plunged 11.7 percent to US$40.35 in New York on Monday, amid a global stock meltdown and oil prices that closed below $100 a barrel for the first time in six months. - AP
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