Crude Oil Rebounds From a Two-Day Decline on AIG Rescue Plan

By Christian Schmollinger and Margot Habiby

Sept. 17 (Bloomberg) -- Crude oil rebounded from its biggest two-day decline in almost four years after the Federal Reserve agreed to rescue American International Group Inc., reducing the risk of further economic slowdown.

Oil climbed as U.S. stocks advanced after floor trading closed on the New York Mercantile Exchange yesterday. U.S. crude-oil and fuel inventories probably fell last week as production platforms and refineries on the Gulf of Mexico shut because of Hurricanes Gustav and Ike, a Bloomberg survey showed.

``We've seen a mild recovery in confidence in the U.S. after it was shattered in the past couple of days,'' said Mark Pervan, a commodity strategist at Australia and New Zealand Banking Corp. in Melbourne. ``The oil market is the most vulnerable to what's happening in the U.S. since that's the largest end-use market.''

Crude oil for October delivery rose as much as $3.34, or 3.7 percent, to $94.49 a barrel in electronic after-hours trading on the New York Mercantile Exchange. It was at $94.16 a barrel at 9:48 a.m. Singapore time. Crude futures declined more than $10 a barrel, or 9.9 percent, in the past two days on concern that financial market disruptions may weaken the global economy and cut fuel demand.

Prices have dropped 1.7 percent this year and declined 36 percent from the record $147.27 a barrel reached on July 11. Yesterday, oil fell $4.56, or 4.8 percent, to $91.15 a barrel, the lowest settlement price since Feb. 7.

Oil Inventories

The Federal Reserve Board, with support of the U.S. Treasury, invoked emergency powers to lend up to $85 billion to American International Group Inc. to save the firm from collapse.

``The rebound in the stock market probably encouraged some buying, and then we're also setting up for the DOE report, which should show lower U.S. inventories in the major categories,'' said Tim Evans, an analyst with Citi Futures Perspective in New York.

U.S. crude-oil inventories probably fell 3.5 million barrels last week because of Hurricane Ike, a Bloomberg News survey of analysts showed.

Supplies of gasoline and distillate fuel, a category that includes heating oil and diesel, probably also dropped. The Energy Department is scheduled to release its weekly petroleum supply report at 10:35 a.m. Washington time today.

Gasoline for October delivery rose 6.17 cents, or 2.6 percent, to $2.4625 a gallon in New York. Yesterday, it dropped 6.3 percent to $2.4008 a gallon, the lowest close since Feb. 13.

Raw Materials

The Reuters/Jefferies CRB Index of 19 raw materials dropped as much as 3.1 percent yesterday to 337.44, the lowest since Dec. 3. The index reached a record on July 3 as the dollar headed toward its lowest ever against the euro and oil approached an all-time high.

A total of 14 Texas and Louisiana refineries, with combined crude-oil processing capacity of 3.57 million barrels a day, are shut because of Ike, the U.S. Energy Department said.

U.S. energy producers have idled about 97 percent of oil production in the Gulf of Mexico after Ike and Hurricane Gustav moved through the region, the Minerals Management Service said yesterday in a statement on its Web site. Gulf fields produce 1.3 million barrels oil a day, about one-quarter of U.S. output.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net; Margot Habiby in Dallas at mhabiby@bloomberg.net.