The turmoil on Wall Street sent oil prices sharply below $100 a barrel for the first time since March, even as the ravages of Hurricane Ike shoved gasoline prices back up toward $4 a gallon.
Oil is now off more than a third from its record high in July, and prices are expected to soften further as jittery investors turn away from oil and other commodities. The weekend's financial shake-up looks set to further trim the U.S. economy's thirst for oil, which is already down nearly 5% from last year.
U.S. benchmark crude was down as low as $94 a barrel, or almost 7%, in intraday trading on the New York Mercantile Exchange, before rebounding to close at $95.71, a drop of 5.4% from its Friday close. Crude is now back almost exactly to where it started the year.
It may be weeks, though, before falling oil prices bring any measure of relief to U.S. consumers. A rough hurricane season has idled many U.S. refineries and slashed gasoline inventories. Gasoline prices have jumped in recent days, up 17 cents a gallon nationally in the past five days to $3.84, according to AAA.
Pump prices are expected to rise further over the next couple of weeks, possibly topping $4 a gallon, said AAA spokesman Geoff Sundstrom. "It is going to cause some short-term pain at the pump for the consumer," he said.
Many analysts remain wary of predicting an end to the bull market in oil, arguing that factors ranging from unrest in Nigeria to potential supply cutbacks in Saudi Arabia could turn prices heading upward again.
"There's a general desire to avoid risk right now, and that has sent oil downward," said Paul Horsnell, an oil analyst for Barclays Bank in London. "But the real world still sees things that are very supportive of oil prices" staying high.
Turmoil continues to threaten supplies from several crucial producers. Militants in Nigeria over the weekend sharply increased their attacks on facilities in the country's key oil province. Iraq's important Kirkuk-Ceyhan pipeline, which typically carries around 300,000 barrels a day of Iraqi crude to Turkey, has been out of commission since Wednesday, evidently because of a bomb attack. And a United Nations report Monday that Iran was pushing forward on its nuclear program is renewing concerns about a potential conflict with the world's fourth-largest exporter.
Last week, a summit of the Organization of Petroleum Exporting Countries left the industry scratching its head whether the cartel, which supplies more than 40% of the world's daily oil needs, will slash output or not in coming weeks. But sharply falling prices could prompt Saudi Arabia to pull back many of the added barrels it put on the market this summer as prices soared.
Oil hadn't closed below $100 a barrel since March 4. A falling U.S. dollar and concerns over long-term oil supplies then helped catapult crude prices above $147 a barrel by mid-July. Prices since then have plunged as traders took note of decreased oil consumption in the U.S. and Europe and sought havens outside the troubled commodities sector.
One sentiment helping nudge prices down Monday was simple relief that Hurricane Ike appeared to do little long-lasting damage to the heart of the U.S. refining industry. The storm, which blew into the refinery cluster around Houston over the weekend, temporarily shut down 14 refineries near Houston, idling one-fifth of U.S. refining capacity.
Until those refineries can restart and begin sending gasoline into pipelines, shortages appear likely, especially in the Southeastern U.S., which depends on gasoline from the Gulf Coast. "There are some outages and some supply disruptions," said Roger Lane, president of the Georgia Oilmen's Association, a trade group representing gasoline stations.
Still, the outlook for refineries seems good. The Energy Department reported Monday morning that "oil refineries suffered minimal damage."