Rejection of Bailout sends oil prices down by $10

Crude oil extended declines after falling the most in almost seven years yesterday as the U.S. House of Representatives rejected a $700 billion financial rescue plan, raising concern commodities demand will drop.

Light sweet crude for November delivery ended at $96.37 per barrel, down $10.52 for the session. Oil hit a 10-day intraday low of $95.04.

Oil has moved about $15 off its highs from last week. Prices have remained highly-volatile recently amid concerns over supplies impacted by hurricanes and demand impacted by credit woes.

After more than a week of tough negotiations, the House of Representatives failed to pass a $700-billion financial rescue plan put forward by the Bush administration in its initial vote. The bill was voted down by a narrow 228-205 margin.

As traders considered the vote, the dollar backed off of near-term highs against the euro and sterling in afternoon trading Monday in New York. However, the greenback was able to quickly recover most of its post-vote slide. Commodities usually move opposite the dollar because of the hedge appeal.

“This certainly raises heightened concern about global demand conditions, especially in the U.S.,'' said Mark Pervan, a senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Melbourne.

On the economic front Monday morning, a Department of Commerce released report showed that personal income rebounded by 0.5 percent in August after falling by a revised 0.7 percent in July. Economists had been expecting a more modest increase of about 0.2 percent compared to the 0.6 percent decrease originally reported for the previous month.

Crude oil for November delivery fell as much as 97 cents, or 1 percent, to $95.40 a barrel, and was at $95.77 at 11:05 a.m. Singapore time in after-hours electronic trading on the New York Mercantile Exchange. Prices have declined 35 percent from the record $147.27 reached on July 11 and have fallen 32 percent this quarter, the first quarterly drop since the end of 2006.

Prices have plunged 11 percent the past three days, the most since Dec. 3, 2004.

Yesterday, oil fell $10.52, or 9.8 percent, to $96.37 a barrel, the biggest slide in percentage terms since Nov. 15, 2001, and the largest dollar decline since Jan. 17, 1991, when U.S.-led forces expelled Iraq from Kuwait.

“The main concern is that you have everything locking up in terms of credit,'' said Anthony Nunan, an assistant general manager for risk management at Mitsubishi Corp. in Tokyo. ``Hedge funds and people who are leveraged are going to have a hard time trading on the market because of the margin requirements. With no credit, people have to hoard cash.''

The CRB Index dropped 21.35 to 343.22, slumping 28 percent from a record on July 3.

U.S. stocks plunged and the Standard & Poor's 500 Index tumbled the most since the 1987 crash after House rejected the bailout package. The Dow Jones Industrial Average slid 778 points in its biggest point drop ever as $1.2 trillion in market value was erased from U.S. equities.

Gasoline for October delivery declined as much as 1.36 cents, or 0.6 percent, to $2.3834 a gallon in New York after its the biggest drop yesterday since the ethanol-based contract began trading in October 2005.

Heating oil was unchanged at $2.7604 a gallon after dropping 7.8 percent to $2.7604 a gallon yesterday.

U.S. fuel demand averaged 19.5 million barrels a day in the four weeks ended Sept. 19, the lowest since October 2003, according to Energy Department data.

The euro and pound dropped against the dollar after Belgium, the Netherlands and Luxembourg extended an 11.2 billion-euro ($16.3 billion) lifeline to Fortis, the largest Belgian financial-services firm, and the U.K. Treasury seized Bradford & Bingley Plc, the nation's biggest lender to landlords.

The dollar strengthened to $1.4395 per euro at 9:18 a.m. Singapore time. It gained 1.2 percent yesterday to $1.4434 per euro and the pound lost 1.8 percent to $1.8115.

``The dollar has reasserted itself and that will create additional drag for commodities, oil particularly,'' said ANZ's Pervan. ``The bottom line is this will make oil more expensive for Europe, Japan, even China and that creates more drag on demand.''

Brent crude oil for November settlement tumbled as much as 68 cents, or 0.7 percent, to $93.30 a barrel on London's ICE Futures Europe exchange, and was at $93.31 at 11:07 a.m. Singapore time. Futures yesterday declined $9.56, or 9.2 percent, to settle at $93.98 a barrel.

Author: Jo Amey