Oil Falls as Stock Losses Signal Concern Over U.S. Bailout Plan

By Christian Schmollinger and Grant Smith

Sept. 23 (Bloomberg) -- Crude oil fell for the first time in a week, paring yesterday's record gain, as declining stock indexes signaled investor concern over a U.S. government bailout plan for financial companies.

Oil dropped as the Europe's Dow Jones Stoxx 600 Index slid on speculation growth in the U.S. economy will slow, cutting energy demand. The October oil futures contract, which expired yesterday, had climbed by a record $16 a barrel to the highest since Aug. 21 as traders unwound positions and the dollar declined the most against the euro since January 2001.

``We're seeing a struggle between the strength from the softer dollar and the likelihood of further declines in demand as stock markets around the world fall again,'' said Christopher Bellew, a senior broker at Bache Commodities Ltd. ``I think the latter will prove more important.''

Crude oil for November delivery declined as much as $2.61, or 2.4 percent, to $106.76 a barrel in electronic trading on the New York Mercantile Exchange. It was at $10.6.94 a barrel at 9:47 a.m. London time.

Yesterday, the contract rose $6.62, or 6.4 percent, to $109.37 a barrel. 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.

``There were a number of traders with short positions betting on a price decline,'' said John Vautrain, senior vice president at consultants Purvin & Gertz Inc. in Singapore in an interview with Bloomberg Television. ``So there was a frenzy of buying by people who had to cover and the price went up through the roof.''

Bailout Package

The dollar was little changed at $1.4725 per euro at 9:08 a.m. London time, from $1.4774 yesterday. It fell as low as $1.4866 yesterday, 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.

Brent crude oil for November settlement fell as much as $2.61, or 2.5 percent, to $103.43 on London's ICE Futures Europe exchange. It was at $103.60 a barrel at 9:47 a.m. London time. The contract yesterday rose $6.43, or 6.5 percent, to settle at $106.04 a barrel.

U.S. crude-oil and fuel inventories probably declined last week because production platforms, refineries and ports along the Gulf of Mexico were shut in the aftermath of hurricanes Gustav and Ike, a Bloomberg News survey of analysts showed.

Supplies of crude oil probably fell 2.5 million barrels last week from 291.7 million barrels, according to the median of responses by nine analysts before an Energy Department report this week. Gasoline stockpiles probably declined 3.6 million barrels from 184.6 million barrels the week before, the survey showed.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net. Grant Smith in London at gsmith52@bloomberg.net