Concerns over deepening turmoil in the U.S. financial system sent oil prices higher Thursday as investors turned away from equities in favor of commodities. Unrest in oil-rich Nigeria also supported prices.
Oil had jumped Wednesday as investors fled equities to crude as a short-term safe haven amid global market unrest. After opening lower Thursday, light, sweet crude for October delivery on the New York Mercantile Exchange was up $2.18 to $99.34 a barrel in electronic trading by midday in Europe.
On Wednesday, the contract rose $6.01 to settle at $97.16, after dropping $10.03 the previous two trading sessions.
"Oil is not viewed as safe a haven as gold, but investors consider it safer than equities," said Victor Shum, an energy analyst with consultancy Gertz & Purvin in Singapore. "If these financial troubles lead to a world recession however, that's going to affect demand big-time."
The Federal Reserve earlier on Wednesday had sought to calm investor fears by rescuing troubled insurer American International Group Inc. with an $85 billion bailout loan. The emergency measure came a day after Lehman Brothers Holdings Inc., a 158-year-old investment bank, filed for bankruptcy after failing to find a buyer.
Stepped-up attacks by Nigerian militants against the country's oil infrastructure helped to support oil prices. In a fifth day of violence, Nigeria's main militant group said Wednesday that it had destroyed an oil-pumping station and a pipeline crossing southern Nigeria in a rare daylight attack.
A spokesman for Nigeria's state oil company said Wednesday that militant attacks are now cutting the country's daily oil production by about 1 million barrels a day, 40 percent of what the country produced before the militant campaign began three years ago.
"In the last few days, militant attacks in Nigeria have been stirring up again, but that's on the back burner right now," Shum said. "I see downward pressure on oil in the near-term, with the key support level at US$90."
Commenting on the nervousness in the market, Vienna's JBC Energy noted that "the increase in oil prices ... could be a sign that investors can no longer trust each other and investments are being made in commodities that appear safe."
The U.S. government reported Wednesday a bigger-than-expected drop in crude supplies, reflecting the shutdown of virtually all Gulf Coast oil production because of Hurricane Ike and Hurricane Gustav.
The Energy Information Administration said U.S. crude stocks fell by 6.3 million barrels for the week ending Sept. 12, much bigger than the 3.7 million barrel drop expected by analysts surveyed by energy research firm Platts.
In other Nymex trading, heating oil futures fell more than a cent to $2.81 a gallon, while gasoline prices dropped by 2 pennies to $2.4430 a gallon. Natural gas for October delivery rose by more than 26 cents to $8.174 per 1,000 cubic feet.
In London, October Brent crude gained 92 cents to $95.76 a barrel on the ICE Futures exchange.
Associated Press Writer Alex Kennedy contributed to this report from Singapore.
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