Oil prices steady after mayhem on Wall Street

Singapore: Oil dropped more than a dollar to near $96 a barrel on Thursday, as the deepening crisis on Wall Street rattled markets, despite a surge of $6 a day ago after a fall in weekly US crude stocks.

US light crude futures for October delivery shed $1.04 to $96.12 a barrel by 0440 GMT, after earlier touching an intra-day high of $98.14 a barrel, the strongest since Friday.

Prices, which are nearly 35 per cent off their July record high above $147 a barrel, had shot up $6 at Wednesday's close, their largest one-day percentage gain in three months.

London Brent crude lost 109 cents to $93.75 a barrel.

"There is a huge nervousness in the equity sector. Investors are coming back to commodities and this is a flight of safety," said Peter McGuire of Commodity Warrants Australia.

Financial markets the world over continue to be rattled despite the US government's $85 billion bailout of beleaguered American International Group Inc as investors fret that Wall Street's gyrations had yet to fully play out.

Asian markets, once thought to be able to weather the US credit turmoil, began to show signs of fragility, diving up to four per cent on Thursday on the back of frenetic consolidation in the US financial sector.

The MSCI all-country world stocks index plummeted to its weakest since November 2005.

Overnight, No. 2 US investment bank Morgan Stanley and top US savings and loan Washington Mutual were reportedly up for sale, while Britain's Lloyds TSB agreed to buy rival HBOS.

Further supporting oil prices, the US Energy Information Administration reported a larger-than-expected decline in domestic crude oil inventories of 6.3 million barrels as hurricanes Gustav and Ike slashed production and imports.

The EIA report also showed US gasoline inventories fell last week to their lowest level on record.

The Department of Energy said it was considering asking the International Energy Agency to release emergency fuel supplies due to the crunch.

As of Wednesday, nearly 96 per cent of the Gulf of Mexico's oil production was still shut and a dozen refineries along the coast, representing a fifth of US fuel production, stayed shut.