Oil steadies at $97

Oil was little changed around $97 a barrel on Thursday after surging $6 a day ago after a fall in weekly U.S. crude stocks and the deepening crisis on Wall Street triggered a renewed wave of buying in select commodities.

U.S. light crude futures for October delivery edged up 25 cents to $97.41 a barrel, after earlier touching an intra-day high of $98.14 a barrel, the strongest since Friday.

Prices shot up $6 at Wednesday's close, their largest one-day percentage gain in three months.

London Brent crude was up 34 cents at $95.18 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 U.S. 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 U.S. credit turmoil, began to show signs of fragility, diving up to 4 percent on Thursday on the back of frenetic consolidation in the U.S. financial sector. The MSCI all-country world stocks index plummeted to its weakest since November 2005.

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

Further supporting oil prices, the U.S. 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 U.S. 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 percent of the Gulf of Mexico's oil production was still shut and a dozen refineries along the coast, representing a fifth of U.S. fuel production, stayed shut.

Author: Jo Amey