UPDATE 7-Oil drops $4 on financial turmoil, Ike

                                
 * Lehman, Merrill 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)
                                
 By Matthew Robinson
                                
 LONDON, Sept 15 (Reuters) - Oil plunged $4 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.
                                
 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.
[ID:nN14440361]
                                
 U.S. crude <CLc1> dropped $4.36 to $96.82 barrel at 1630
GMT, after hitting a seven-month low of $94.13 earlier,
extending a 34 percent slide from peaks in mid-July amid
mounting evidence of slowing fuel demand.
                                
 London Brent crude <LCOc1> fell $4.77 to $92.81 a barrel.
                                
 Oil companies rushed to check damage to their facilities
after Hurricane Ike struck the heart of the U.S. energy
industry near Houston on Saturday, leaving a quarter of the
nation's oil and refined fuel production idled.[ID:nN15301457]
                                
 Early indications showed no major damage to energy
infrastructure, though several Texas refineries remained
without power. The U.S. Department of Energy said plants
suffered minimal damage and were preparing to restart.
[ID:nWBT009697]
                                
 "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."
                                
  U.S. stock markets fell after news of the Lehman
bankruptcy and as investors awaited for insurer American
International Group <AIG.N> to announce a survival plan as the
insurer attempts to avoid becoming the next casualty of the
credit crunch. [ID:nN15519385]
                                
 DOLLAR
                                
 Oil had been on a six-year rally driven by surging demand
from emerging economies like China, with additional support
coming this year as investors rushed into oil as a hedge
against inflation and the weak dollar.
                                
 But the dollar has been rebounding in recent months, and
rose further on Monday amid a broad flight from risk igniting
U.S. Treasury debt, gold and the low yielding Japanese yen.
[ID:nLF677216]
                                
 "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," said Michael
Davies, analyst at Sucden.
                                
 China's central bank cut the cost of bank loans for the
first time since February 2002 to prop up the slowing economy.
[ID:nPEK358595]
                                
 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. [ID:nLF652982]
 (Reporting by Matthew Robinson and David Sheppard in London,
Fayen Wong in Perth, Richard Valdmanis in New York, editing by
Marguerita Choy)