Bad news: Oil prices crash through the $100 floor

For the first time in six months, oil prices dropped below the psychological $100/barrel last Monday and as of this writing, settled at $92.55 a barrel.

The sudden reversal of the oil fortune effectively scratched completely all the gains for the year. From a peak of $147 a barrel just two months ago, oil prices have lost more than 35% of its peak value.

Normally, such news would have been greeted with fireworks, and indeed, locally there have been some muted jubilation with the accelerated pump price reductions effected by fuel retailers. Reduction in fare prices may not be far behind.

The early sign of oil price rollback emerged when initial reports suggested that Hurricane Ike, while devastating a large swath of Texas, virtually left the oil platforms at the Gulf and the refineries unscathed.

U.S. authorities reported Sunday that Ike destroyed at least 10 oil and gas platforms and damaged pipelines in the Gulf of Mexico. But that number is only a fraction of the more than 3,800 production platforms in the Gulf and insignificant compared to the havoc brought about by Hurricanes Katrina and Rita three years ago.

 Oil prices continued their downward trajectory even as militants increase their attacks on oil platforms in the Niger Delta.

 Not even the expulsion of the U.S. ambassador to Bolivia which draws a similar sympathetic expulsion of the U.S. ambassador to oil-rich Venezuela, by leftist President Hugo Chavez, could halt the slide of oil prices.

But what suddenly triggered the sell-off were dramatic events in Wall Street which signals a looming economic downturn not only in the U.S., but would likely plaster much of the globe.

That is the real bad news.

In Wall Street, the venerable 158-year-old investment bank Lehman Brothers Holdings Inc., an iconic symbol of American capitalism, filed for bankruptcy after failing to find a white knight for its failing business. This came on the heels of the sale of another capitalist icon Merrill Lynch & Co. to Bank of America Corp.

The two bellwethers of the finance world, together with big institutional investors, have been the main participants in pushing the prices of commodities—not only oil but precious and strategic metals and foods as well—to stratospheric levels until signs of economic slowdown abruptly stopped the price train on its tracks.

 The upheaval in the financial sector could trigger massive liquidation of commodities amidst the fear that a slowdown could drastically cut the demand for energy and other raw materials futures.

 With the mightiest economy in deep trouble, the lesser economies, ours included, would be sucked in the maelstrom of economic downturn.

 Therein lays the dreaded looming economic crisis as if we have not suffered enough.