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Oil plunges below $100 as US bailout plan voted down
(Agencies)
Updated: 2008-09-30 10:24

NEW YORK -- Oil prices tumbled more than $10 a barrel Monday, dropping back below $100 as a US financial bailout failed to win legislative approval, raising fears of a prolonged economic downturn that could drastically erode global energy demand.

Light, sweet crude for November delivery sank $10.52, or 9.8 percent, to settle at $96.36 on the New York Mercantile Exchange, after earlier dropping as low as $95.04.

The dramatic sell-off capped a week of frenzied volatility in oil markets.

A week earlier, prices shot up over $16 to $120.92 a barrel in the biggest one-day dollar gain ever. But as disagreements over the government's $700 billion bailout plan intensified over the last several days, oil market traders began moving out of their positions at a rapid clip; Monday's decline was the second largest ever in dollar terms and the biggest percentage-wise since 2001. Crude has now fallen almost $25, or 20 percent, in the last seven days.

Monday's nosedive came as House lawmakers defeated the emergency measure, which would have absorbed billions of dollars in banks' bad mortgage-related debt and other risky assets in a bid to steady the teetering economy. Democratic and Republican lawmakers pledged to try and work out another deal, but oil markets traders viewed the defeat as another bearish weight on oil.

"This is an acknowledgment that the global slowdown is here and energy demand is not going to be what it was," said Phil Flynn, energy analyst at Alaron Trading Corp. in Chicago.

Oil market traders were skeptical before the plan was voted down. Many doubted it would go far enough to unfreeze credit markets and restore calm to the financial system. If the economy worsens, analysts say businesses could be forced to lay off workers, leading Americans to cut back on driving and other energy use in the world's largest consumer.

"With demand falling at the pace it is, nothing can support crude at levels above $100," said James Cordier, president of Tampa, Fla.-based trading firms Liberty Trading Group and OptionSellers.com. "There's no underlying demand from any pocket."

Other commodities also traded sharply lower Monday as investors bet that a widening economic malaise will swallow demand for building materials, grains and other goods.

Highlighting weak US appetite for energy, pump prices kept falling Monday. A gallon of regular slipped about a penny overnight to a new national average of $3.643, according to auto club AAA, the Oil Price Information Service and Wright Express. Prices peaked at $4.114 on July 17.

Gasoline could get cheaper as US Gulf Coast energy output ramps up following the passage of Hurricanes Ike and Gustav. About 57 percent of crude oil production and 53 percent of natural gas output remained shut-in Monday after shutdowns prompted by the storms, according to the US Minerals Management Service, meaning more supply has yet to come on line.

But analysts say the rough economic conditions will make $3.50 gasoline feel like $4 for many consumers.

"In a falling economy like this, that's going to seem very expensive and is not going ot jolt the consumer to spend more or drive more," Cordier said.

The rescue plan would have given the administration broad power to use hundreds of billions of taxpayer dollars to purchase devalued mortgage-related assets held by cash-starved financial firms.

Congress insisted on a stronger hand in controlling the money than the White House had wanted. The government would have taken over huge amounts of devalued assets from beleaguered financial companies in hopes of unlocking frozen credit.

House lawmakers planned to reconvene on Thursday instead of adjourning for the year as planned, but it was unclear if they would hold another vote on the bailout.

Oil prices were also pushed down by a stronger dollar. Investors often buy crude futures as a hedge against a weakening dollar and inflation, and sell when the dollar strengthens.

The 15-nation euro fell Monday to $1.4414 from $1.4614 on Friday.

In other Nymex trading, heating oil futures fell 22.89 cents to settle at $2.7885 a gallon, while gasoline futures dropped 26.81 to settle at $2.397 a gallon. Natural gas futures lost 40.7 cents to settle at $7.221 per 1,000 cubic feet.

In London, November Brent crude fell $9.56 to settle at $93.98 a barrel on the ICE Futures exchange.