Crude Oil Declines on Concern U.S. Bailout Plan May Hit Snag

By Christian Schmollinger

Sept. 26 (Bloomberg) -- Crude oil fell in New York after Congressional negotiations on plans to rescue the financial industry stalled, adding to concern that the economy of the world's biggest energy consumer will falter, slowing fuel demand.

Senate Banking Committee Chairman Christopher Dodd said yesterday that the agreement in principle he had reached earlier in the day with some Republicans was later undermined by a proposal offered by other members of the caucus. U.S. average oil products consumption for the past four weeks was down 6.6 percent from last year, the Energy Department said Sept. 24.

``The up and downs we've seen in the oil market deeply depend on the strength of the rescue plan,'' said Hirofumi Kawachi, a senior energy analyst at Mizuho Investors Securities Co. in Tokyo. ``People are simply losing confidence in the ability of Congress to pass the projected plan.''

Crude oil for November delivery fell as much as $1.44, or 1.3 percent, to $106.58 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $106.71 a barrel at 10:34 a.m. Singapore time.

Prices are down 28 percent from the record $147.27 a barrel reached on July 11. Yesterday, futures rose $2.29, or 2.2 percent, to settle at $108.02 a barrel.

Oil is headed for its first weekly gain in three weeks after climbing 2.1 percent since Sept. 19. The market traded in a $26.78 range including a record one day jump of $25.45 on Sept. 23 after traders that sold October futures earlier in the month had to buy back contracts at higher prices before expiry.

Sales of new homes in the U.S. fell in August to a 17-year low, signaling the housing market suffered another setback even before the latest turmoil in financial markets. Sales dropped 11.5 percent, more than forecast, to an annual rate of 460,000, the fewest since January 1991, the Commerce Department said yesterday. The median sales price dropped to a four-year low.

Durable Goods

Orders for U.S. durable goods fell more than twice as much as forecast in August, a sign that slower sales and tighter credit conditions prompted companies to cut spending. The 4.5 percent drop in bookings of goods meant to last several years followed a revised 0.8 percent gain in July, the Commerce Department said yesterday in a separate report.

Gasoline demand averaged 9 million barrels a day during the past four weeks, down 3.4 percent from the same period last year, the Energy Department report showed. Gasoline inventories dropped 5.9 million barrels to 178.7 million barrels, the lowest since 1967. Supply levels prior to 1990 were reported on a monthly basis.

Brent crude oil for November settlement fell as much as $1.20, or 1.2 percent, to $103.40 a barrel on London's ICE Futures Europe exchange. It was at $103.48 a barrel at 10:19 Singapore time. The contract declined yesterday as much as 83 cents, or 0.8 percent, to $103.77 a barrel.

There was also pressure on prices as OPEC continues to export large volumes of oil as it may take time for the group to cut back their output to the proscribed quota levels.

OPEC's daily shipments of oil will increase 2.2 percent in the four weeks to Oct. 11, according to data from industry consultant Oil Movements released yesterday.

The Organization of Petroleum Exporting Countries will load 24.75 million barrels a day in the period, compared with 24.21 million barrels a day shipped in the four weeks ended Sept. 13, the Halifax, England-based consultant said.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.