Crude Oil Declines After U.S. Financial-Rescue Plan Hits Snag

By Mark Shenk

Sept. 26 (Bloomberg) -- Crude oil fell, leading energy futures lower, after negotiations over the $700 billion financial bailout plan stalled, adding to concern that U.S. economic growth in the world's biggest energy-consuming country will falter.

Oil prices dropped as much as 3.5 percent after House Republicans rejected the proposed rescue of the U.S. financial system, imperiling an agreement hours after an announcement that one was near. U.S. fuel demand over the past four weeks was down 5.3 percent from last year, a government report showed this week.

``The oil market is at the mercy of what is going on in Washington,'' said Gene McGillian, an analyst at TFS Energy LLC in Stamford, Connecticut. ``If there isn't an agreement, prices will drop further because the economy will slow further and demand destruction will continue.''

Crude oil for November delivery fell $2.62, or 2.4 percent, to $105.40 a barrel at 10:03 a.m. on the New York Mercantile Exchange. Prices are down 28 percent from the record $147.27 a barrel reached on July 11.

Gasoline for October delivery declined 8.69 cents, or 3.2 percent, to $2.6104 a gallon in New York. Heating oil fell 5.73 cents, or 1.9 percent, to $2.9685.

Oil prices may decline next week, according to a survey of analysts by Bloomberg News. Fourteen of 29 analysts, or 48 percent, said prices will decrease through Oct. 3.

The U.S. economy expanded at an annual rate of 2.8 percent in the second quarter, slower than the previous estimate, as consumer spending and trade contributed less to growth, the Commerce Department said today in Washington. The revised figures were down from an estimate of 3.3 percent last month.

GDP Forecasts

Economists at JPMorgan Chase & Co. and Morgan Stanley this week cut third-quarter Gross Domestic Product forecasts, and Federal Reserve Chairman Ben S. Bernanke warned the economy may falter without the $700 billion bank rescue. The U.S. was responsible for 24 percent of global oil consumption last year, according to BP Plc.

Total SA, Europe's third-largest oil company, said it restored power to its Port Arthur refinery in Texas following Hurricane Ike, and plans to restart the plant. About 41 percent of oil production in the Gulf of Mexico remains shut following this storms this month, the Minerals Managements Service said yesterday.

Brent crude oil for November settlement declined $2.21, or 2.1 percent, to $102.39 a barrel on London's ICE Futures Europe exchange.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.