* Lehman, Merrill Lynch roil markets, spur flight to quality
* No signs of major damage to U.S. oil sector from Ike
* Oil hits seven-month low
(Updates prices, adds details on AIG)
By Matthew Robinson
LONDON, Sept 15 (Reuters) - Oil plunged $5 on Monday as
investors fled to safer havens due to turmoil in the U.S.
financial system and on early signs Hurricane Ike had spared key
U.S. energy infrastructure.
U.S. crude <CLc1> dropped $5.13 to $96.05 barrel at 1338
GMT, after hitting a seven-month low of $94.13 earlier.
U.S. 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 <LCOc1> fell $5.26 to $92.32 a barrel.
Lehman Brothers' <LEH.N> filing for bankruptcy protection
and Bank of America's <BAC.N> agreement to buy Merrill Lynch
<MER.N> stirred concerns that mounting global economic problems
would slow energy demand further, sending investors out of oil.
[]
In addition, Insurer American International Group Inc
<AIG.N> has made an unprecedented approach to the Federal
Reserve seeking $40 billion in short-term financing, the New
York Times said. []
Oil companies rushed to check damage to their facilities
after Hurricane Ike struck the heart of the U.S. energy industry
near Houston 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 and in need of some repairs while Shell, the largest
producer in the offshore Gulf of Mexico, said it found
moderate damage to some of its platforms.
"The sell-off 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 economic outlook and how that will weigh
on global energy demand."
DOLLAR
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.
Surging demand from emerging economies like China launched
oil on a six-year rally, with additional support coming this
year as investors rushed into oil as a hedge against inflation
and the weak dollar.
The U.S. dollar sank even as crude tumbled on Monday, with a
broad flight from risk igniting U.S. Treasury debt, gold and the
low yielding Japanese yen. []
"The oil and dollar story seems to have changed," said
Michael Davies, analyst at Sucden. "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."
China's central bank cut the cost of bank loans for the
first time since Feb. 2002 to prop up the slowing economy.
[]
Militants in OPEC member Nigeria attacked a Royal Dutch
Shell <RDSa.L> oil installation on Monday in a third day of
heavy fighting with security forces. []
(Reporting by Matthew Robinson and David Sheppard in London,
Fayen Wong in Perth, editing by Anthony Barker)
