Oil in steepest two-day slide since 2004

By Richard Valdmanis

NEW YORK (Reuters) - Oil prices dropped another 5 percent to a seven-month low on Tuesday, extending the steepest two-day slide since 2004 as mounting economic turmoil sent investors fleeing to safer havens.

The losses came despite U.S. supply disruptions after Hurricane Ike crashed through the Gulf of Mexico last week and left a quarter of the nation's energy output idled.

"People are getting out of commodities and getting into safer havens, like bonds," said Andy Lebow, broker at MF Global in New York.

U.S. crude for October settled down $4.56 at $91.15 a barrel, adding to losses of more than $5 on Monday. Prices have dropped about 10 percent in two days, the biggest slide since December 2, 2004.

Brent crude fell $5.02 to $89.22 a barrel.

"If the economic turmoil continues, demand will continue to drop," said Jonathan Kornafel, Asia Director at U.S.-based options trader Hudson Capital Energy. "It's a bit of panic in the markets."

Monday marked the worst day on Wall Street since markets reopened after the September 11 attacks in 2001, with investors fleeing to safer havens, such as gold and bonds, after news of Lehman Brothers' bankruptcy and the sale of Merrill Lynch.

Growing problems at insurer American International Group added to fears about the financial sector's stability and the outlook for the global economy.