Crude Oil Drops After $25 Gain on Final Day of October Contract

By Margot Habiby

Sept. 23 (Bloomberg) -- Crude oil for November delivery fell as the dollar rebounded from a one-month low and after the October contract climbed more than $25 a barrel in its final trading day yesterday, a record one-day gain.

Oil rose to its highest since Aug. 21 yesterday as traders scrambled to unwind positions on the October contract, the dollar declined the most against the euro since January 2001 and on speculation a proposed $700 billion U.S. bailout package for the finance industry may bolster the economy and shore up demand.

``The dollar will be the focal variable in the coming days because the Treasury proposition and the bailout plan could have a significant impact on the dollar,'' said Christopher Edmonds, the managing principal of FIG Partners Energy Research & Capital Group in Atlanta.

Crude oil for November delivery fell 74 cents, or 0.7 percent, to $108.63 a barrel at 9:13 a.m. Sydney time on the New York Mercantile Exchange. Yesterday, the contract rose $6.62, or 6.4 percent, to $109.37 a barrel.

Oil has risen 20 percent since Sept. 16 as lawmakers pledged fast consideration of the Treasury's plan to buy devalued mortgage-related securities.

The October contract rose $16.37, or 17 percent, to expire at $120.92 a barrel yesterday on the Nymex. It touched $130 in intraday trading, as traders who sold the October contract last week, when oil dipped close to $90, had to buy the futures back.

Traders `Squeezed'

In a squeeze, a trader has gone short by selling contracts betting that the price will decline. In the last days before the contract expires the trader must buy back the same number of futures or be forced to deliver the underlying oil.

The Commodity Futures Trading Commission is ``closely monitoring'' yesterday's gain in oil prices on Nymex for potential manipulation, the agency's acting chairman said.

``We are working closely with Nymex compliance staff to ensure that no one is taking advantage of the current stresses facing our financial marketplace for their own manipulative gain,'' Acting Chairman Walter Lukken said in a statement.

The dollar was little changed at $1.4793 per euro at 8:35 a.m. Sydney time, from $1.4774 yesterday. It has rebounded since dropping 2.1 percent yesterday to $1.4866, the weakest level since Aug. 22, on concern the U.S. bailout package, which would buy assets from financial firms, would inflate the budget deficit.

``Traders are trying to figure out what this bailout and stimulus package is and what it means,'' Edmonds said. ``To say that it means the consumer is alive and well and energy demand is going to pick up to pre-dip levels is way, way premature. At some point in the not-too-distant future, this package has to be paid for, and the economic repercussions are pretty significant for the taxpayer.''

`Economic Slowdown'

Crude oil prices are ``too high'' because the global economic slowdown may spread and cut consumption, the International Energy Agency's deputy executive director said yesterday.

``The economic slowdown in the U.S., Europe hasn't gotten into China, India much, but at some point you have to presume it will,'' William Ramsay said in an interview in Bangkok yesterday.

The Paris-based IEA, which advises 27 developed nations on energy policy, was set up in 1974 in response to the Arab oil embargo.

Brent crude oil for November settlement rose $6.43, or 6.5 percent, to settle at $106.04 a barrel on London's ICE Futures Europe exchange yesterday.

Gasoline for October delivery fell 0.38 cent to $2.70 a gallon in New York. Yesterday, it increased 10.41 cents, or 4 percent, to settle at $2.7038 a gallon in New York. Regular gasoline, averaged nationwide, declined 1.8 cents to $3.739 a gallon, AAA, the nation's largest motorist organization, said today on its Web site. Pump prices reached a record $4.114 a gallon on July 17.

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.