Oil Falls as Bailout Approaches

After a proposed US government bailout of the financial sector moved closer to Congressional approval, oil prices fell in Asian trade today.

Congressional leaders from both parties said they had reached a tentative agreement on Sunday, but questions abound as to whether the rescue plan, which would use taxpayer funds to buy up toxic mortgage debt, would restore confidence to shaky markets and head off a deep recession.

New York's main contract, light sweet crude for November delivery, fell $US1.04 to $US105.85 from $US106.89 at the close of floor trading on the New York Mercantile Exchange Friday.

Brent North Sea crude for November delivery dropped 69 cents to $US102.85 dollars a barrel.

Lawmakers in America have struck a deal on draft legislation for the bailout of up to $US700 billion for struggling Wall Street banks hit by the worst financial crisis since the Great Depression of the 1930s.

Republican negotiator Judd Gregg said he hoped the bill could be voted on as early as tonight by both the House of Representatives and the Senate.

Victor Shum, an analyst with energy consultancy Purvin and Gertz, said the deal would offer only short-term relief for investors worried about the impact of the financial crisis on energy demand in the world's biggest oil user.

"It looks like it has got agreement from both the Democrats and the Republicans,'' Mr Shum said in Singapore.

"However, there are still a lot of worries about the depth and length of the economic impact of this crisis... These worries will weigh on prices,'' he said.

Oil prices have dropped sharply from record high levels above $US147 in July on worries that demand is shrinking in a US-led global slowdown.

The main points of the 106-page bill, known as the Emergency Economic Stabilization Act of 2008, include the immediate release of $US250 billion to enable the Government to buy up "troubled assets'' at the root of a global financial crisis.

In the bill, the president is authorised to approve a further $US100 billion, but the plan gives Congress a veto power over purchases above that limit and sets a ceiling for all purchases of $US700 billion.

Author: Jo Amey