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Oil loses appeal as hedge against risk

Globe and Mail – Once viewed as a safe haven, crude oil has lost its lustre as investors bet that the crisis in financial markets will hurt an already weakened global economy and drive down petroleum demand.

At the same time, speculators who piled into oil and other commodities on the way up have reversed course, as brokerages and hedge funds are being forced to liquidate those positions to buttress their balance sheets, traders said yesterday.

Lehman Brothers Inc. and Merrill Lynch & Co. Inc. are both major players in the crude oil markets, and both companies are expected to unwind their positions after Lehman sought bankruptcy protection and Merrill agreed to be acquired by Bank of America.

Crude prices fell sharply yesterday on futures markets in London and New York after hurricane Ike blew through the Gulf of Mexico without doing major damage to U.S. oil production there.

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