Oil skids $4 on weak demand outlook

London: Oil plunged $4 on Monday as investors fled to safer havens due to turmoil in the US financial system and on early signs Hurricane Ike had spared key US energy infrastructure.

Lehman Brothers filing for bankruptcy protection and Bank of America's agreement to buy Merrill Lynch stirred concerns that mounting global economic problems would slow energy demand further, sending investors out of oil.

US crude dropped $4 to $97.18 barrel at 1506 GMT, after hitting a seven-month low of $94.13 earlier.

US oil fell below $100 briefly on Friday for the first time since early April, and trade was open for a special session on Sunday due to Ike.

London Brent crude fell $4.77 to $92.81 a barrel.

Damage control

Oil companies rushed to check damage to their facilities after Hurricane Ike struck the heart of the US energy industry near Houston on Saturday, leaving a quarter of the nation's oil and refined fuel production idled.

Early indications showed no major damage to energy infrastructure, though several Texas refineries remained without power. The US Department of Energy said plants suffered minimal damage and were preparing to restart.

"The selloff is partly because Hurricane Ike hasn't done significant structural damage to oil facilities as well as growing concerns about the economy," said David Moore, commodities strategist for Commonwealth Bank of Australia.

"It has been quite a spectacular turn of events at Lehman and Merrill and the stresses in the financial system are sparking concerns about the economic outlook and how that will weigh on global energy demand."

US stock markets fell after news of the Lehman bankrupcy and as investors awaited for insurer American International Group to announce a survival plan in an attempt to avoid becoming the next casualty of the credit crunch. High fuel prices and wider economic problems have dragged down oil demand in the United States and other large consumer nations, sending crude prices from a record high over $147 a barrel in July.

Oil has been on a six-year rally driven by surging demand from emerging economies, with additional support coming this year as investors rushed into oil as a hedge against inflation and the weak dollar.

The dollar rose on Monday with a broad flight from risk igniting US Treasury debt, gold and the low yielding yen.

"While the flight to quality has seen gold move up today, oil doesn't seem to be getting used as a hedge at the moment, as the sentiment in the market is still bearish," said Michael Davies, analyst at Sucden.

China's central bank cut the cost of bank loans for the first time since February 2002 to prop up the slowing economy.