Oil Extends Biggest Drop in 7 Years on Rejection of Rescue Plan

By Christian Schmollinger

Sept. 30 (Bloomberg) -- Crude oil extended its decline in New York after falling the most in almost seven years yesterday as U.S. lawmakers rejected a $700 billion financial rescue plan, raising concern demand for commodities will drop.

Oil slumped more than $10 yesterday, helping send the Reuters/Jefferies CRB Index of 19 commodities to the biggest tumble since at least 1956, as the House of Representatives voted down the plan and European governments bailed out three more banks. Corn, nickel and platinum also fell.

``This certainly raises heightened concern about global demand conditions, especially in the U.S.,'' said Mark Pervan, a senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Melbourne. ``The trend for prices is down and I don't think we've seen the bottom yet.''

Crude oil for November delivery fell as much as $3.01, or 3.1 percent, to $93.36 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $93.37 a barrel at 8:23 a.m. London time.

Prices have declined 35 percent from the record $147.27 reached on July 11 and have fallen 32 percent this quarter, the first quarterly drop since the end of 2006. Oil has plunged 11 percent the past three days, the most since Dec. 3, 2004.

Yesterday, oil fell $10.52, or 9.8 percent, to $96.37 a barrel, the biggest slide in percentage terms since Nov. 15, 2001, and the largest dollar decline since Jan. 17, 1991, when U.S.-led forces expelled Iraq from Kuwait. Crude closed yesterday at the lowest since Sept. 16.

Stocks Plunge

``The main concern is that you have everything locking up in terms of credit,'' said Anthony Nunan, an assistant general manager for risk management at Mitsubishi Corp. in Tokyo. ``Hedge funds and people who are leveraged are going to have a hard time trading on the market because of the margin requirements. With no credit, people have to hoard cash.''

The CRB Commodity Price Index dropped 21.35 to 343.22, slumping 28 percent from a record on July 3.

U.S. stocks plunged and the Standard & Poor's 500 Index tumbled the most since the 1987 crash after House rejected the bailout package. The Dow Jones Industrial Average slid 778 points in its biggest point drop ever as $1.2 trillion in market value was erased from U.S. equities.

Gasoline for October delivery slipped as much as 2.1 percent to $2.3464 a gallon in New York after the biggest drop yesterday since the ethanol-based contract began trading in October 2005.

Heating oil was at $2.707 a gallon, down 0.53 cent, after dropping 7.8 percent to $2.7604 a gallon yesterday.

U.S. fuel demand averaged 19.5 million barrels a day in the four weeks ended Sept. 19, the lowest since October 2003, according to Energy Department data.

Dollar Strengthens

The euro and pound dropped against the dollar after a government-led bailouts this week of Brussels- and Amsterdam- based Fortis, U.K.-based Bradford & Bingley Plc and Germany's Hypo Real Estate Holding AG.

The dollar weakened to $1.4413 per euro at 8:26 a.m. London time. It gained 1.2 percent yesterday to $1.4434 per euro and the pound lost 1.8 percent to $1.8115.

``The dollar has reasserted itself and that will create additional drag for commodities, oil particularly,'' ANZ's Pervan said. ``The bottom line is this will make oil more expensive for Europe, Japan, even China, and that creates more drag on demand.''

Brent crude oil for November settlement tumbled as much as $2.88, or 3.1 percent, to $91.10 a barrel on London's ICE Futures Europe exchange at 8:26 a.m. London time. Futures yesterday dropped $9.56, or 9.2 percent, to $93.98 a barrel.

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