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Oil dives 3.8 percent to 8-month low on demand fears
DATE:2008-10-6  FROM:  AUTHOR:  DOWN:2439
 
SINGAPORE (Reuters) - Oil prices tumbled nearly 4 percent amid a commodities-wide rout on Monday, falling to their lowest since February as traders feared efforts to contain a growing credit crisis would fail to stave off a sharper decline in oil demand.


After Friday's passage of a landmark U.S. $700 billion bailout bill seemed to quell, for now, weeks of U.S.-centered turmoil, the focus shifted to Europe where officials scrambled at the weekend to save three banks and offered different ways to soothe the frayed nerves of investors and savers.


U.S. light crude for November delivery tumbled $3.39 a barrel or 3.6 percent to $90.49 by 0711 GMT, a fourth day of losses that deepened last week's 12 percent slump, the market's biggest such loss in almost four years. Earlier in the day, it fell 3.8 percent to as low as $90.27.


London Brent crude dropped $3.25 to $87.00 a barrel.


"There's a growing perception that the bailout package will put a further drag on U.S. growth, and that really this is just a Band-Aid initiative to bail out Wall Street," said Mark Pervan, senior commodities analyst at ANZ.


The U.S. dollar's rise to a 13-month high versus the euro added to pressure on beleaguered commodities, which slumped more than 10 percent last week in their biggest-ever weekly loss. Asian stocks tumbled by around 5 percent on Monday.


Oil demand in the world's top consumer has already slumped this year under the weight of record prices, while consumption in Japan and Europe has also weakened, knocking crude off a record peak over $147 a barrel struck in July.


Traders may begin to fear next for China, whose rapid growth helped trigger oil's rise from just $20 a barrel in 2002.


"I think the market's starting to build this into prices," said Pervan. "You would expect the market is now joining the dots and thinking ... this will probably flow through to China."


Though the United States bought breathing room in the credit crisis with a series of takeovers and bailouts, Europe fought at the weekend to contain the fallout.


Germany said it would guarantee more than 500 billion euros ($693 billion) in private deposit accounts to protect savers from the worst financial crisis since the 1930s. Austria and Denmark quickly followed suit.


German officials clinched a rescue deal for lender Hypo Real Estate, Belgium and Luxembourg found a buyer for Fortis in BNP Paribas, and UniCredit, Italy's second-biggest bank, announced plans to raise capital.


Just a day after leaders of Europe's four biggest economies decided against a coordinated bank bailout, Italian Prime Minister Silvio Berlusconi said Italy would revive the idea at a meeting of finance ministers on Monday, but Germany then said it remained opposed to such a measure.


With prices sliding anew, one of OPEC's most consistent price hawks, Iran, said $100 a barrel was too low and urged members of the Organization of the Petroleum Exporting Countries (OPEC) to respect their quotes to prevent oversupply from worsening.


"With the OPEC decision to cut, oversupply could be controlled in the first quarter of 2009," said Oil Minister Gholamhossein Nozari, referring to OPEC's agreement last month. "But if they (OPEC members) do not carry out the cut, oversupply could reach 1.2 million bpd."


OPEC oil supply fell in September, the first monthly decline since April, thanks to disruptions from two of its African members and lower shipments from Iran and Saudi Arabia, a Reuters survey showed on Friday.


But ANZ's Pervan warned that OPEC's influence was limited in a market being driven more by demand fears than supply concerns.


"I have (oil's floor) at $80 now, but there are risks it could move down to $60," he said

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