Reports that Hurricane Ike caused minor damage to US oil platforms and refineries also weighed on prices, adding to the previous session's more than $5 fall and almost 37-per cent decline from its peak above $147 in mid-July.

US light crude for October delivery, which fell as much as $4.11 at one point, was down $3.92 at $91.79 a barrel by 0245 GMT, tumbling in concert with everything from Asian stock markets to grains. The yen rallied versus the dollar on widespread risk aversion in the wake of Wall Street's turmoil.

London Brent crude fell $3.97 to $90.27 a barrel at the same time, having slumped earlier by as much as $4.44 to touch its lowest since Feb. 8.

"Lehman Brothers' failure has magnified existing worries about the international economic outlook, adding to fears of slower demand for commodities," said David Moore, commodity strategist at Commonwealth Bank of Australia.

"Early reports suggest that Hurricane Ike ... caused only limited structural damage to oil infrastructure," he added.

On Monday, Wall Street had its worst day since markets reopened after the September 11 attacks, with investors fleeing to safer havens such as gold.

Lehman Brothers' bankruptcy, the sale of Merrill Lynch and the struggle of American International Group all stirred fears about the US financial sector's stability and the outlook for the global economy.

And on Wednesday, the three top global ratings agencies slashed their rating on AIG by at least two nothces, adding more downgrades could follow.

Following crude oil's sharp losses -- down 20 per cent since the start of the month -- technical analysts now focused on support below $90 a barrel and into the $85 to $80 a barrel region for the next leg lower.

RESTARTING AFTER IKE

A big chunk of US energy production shut by Hurricane Ike could restart within a week, with the only reports of damage to refineries so far included Shell's Deer Park Plant and ConocoPhillips' Alliance refinery.

Nigerian militants on Monday attacked oil facilities, killing a guard and forcing evacuation of nearly 100 workers, in a third day of fighting with security forces that has disrupted oil output.

The focus later on Tuesday shifts to the US Federal Reserve, which is expected by many analysts to keep interest rates on hold, although after Monday's Lehman shockwaves investors are pricing in a significant chance of a quarter-point rate cut aimed at calming roiled markets.

The result of its meeting is expected to be announced at around 2:15 p.m. EDT (1815 GMT).

The market is also looking ahead to Wednesday's US oil stocks data, expected to show a 3.4 million barel draw down in crude inventories, a 2.0 million barrel drop in distillate supplies and a 4.0 million barrel decline in gasoline stocks.