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

By Mark Shenk

Sept. 23 (Bloomberg) -- Crude oil fell for the first time in a week as declining stock indexes signaled skepticism that a U.S. government bailout plan for financial companies will bolster economic growth or fuel consumption.

Oil dropped as stocks in Europe and Asia fell on concern that a proposed $700 billion rescue may not be enacted. The October oil contract, which expired yesterday, rose a record $16 a barrel as traders unwound positions and the dollar fell the most against the euro since January 2001.

``It doesn't look like the $700 billion plan is going to help demand after all, because consumers will be hit by higher prices,'' said Peter Beutel, president of Cameron Hanover Inc. in Stanford, Connecticut. ``There was obviously a squeeze yesterday, and that's not occurring with the November contract, which will be trading for another month.''

Crude oil for November delivery fell 46 cents, or 0.5 percent, to $108.83 a barrel at 9:05 a.m. on the New York Mercantile Exchange. Prices are down 26 percent from the record $147.27 a barrel reached on July 11.

Yesterday, the November contract rose $6.62, or 6.4 percent, to $109.37 a barrel. Oil for October delivery climbed $16.37, or 16 percent, to $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 was a lot of pent-up demand for the October oil,'' Beutel said. ``The selloff during the hurricanes this month lulled some commercial traders into believing that prices would continue to go down. This didn't happen and there was a rush over the last couple days.''

U.S. lawmakers may seek to include commodity speculation limits in legislation designed to rescue banks from bad mortgage investments after a squeeze in oil trading sent crude to a record gain.

Brent crude oil for November settlement declined 69 cents, or 0.7 percent, to $105.35 a barrel on London's ICE Futures Europe exchange.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.