Oil Rises a Second Day on Signs U.S. Will Revive Bailout Plan

By Mark Shenk

Oct. 1 (Bloomberg) -- Crude oil rose for a second day after U.S. lawmakers said they intend to salvage a $700 billion bank- rescue package that may avert an economic slowdown and U.S. stocks jumped the most in six years.

Oil rose and equities rallied after both were battered when the House of Representatives failed to pass a rescue bill on Sept. 29 and European governments bailed out three banks. The U.S. Senate will try to revive the financial package today.

``The market is being totally driven by what is happening in Washington,'' said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. ``What happens to oil prices depends completely on whether the rescue package is approved or not.''

Crude oil for November delivery rose $1.46, or 1.5 percent, to $102.10 a barrel at 8:09 a.m. Sydney time on the New York Mercantile Exchange. Futures are down 31 percent from the record $147.27 a barrel reached on July 11.

Oil added $4.27, or 4.4 percent, yesterday to $100.64 a barrel, the biggest gain since Sept. 22. Futures fell 28 percent in the third quarter, the biggest drop since 1991.

``We won't be seeing oil near $150 anytime soon,'' said Sarah Emerson, managing director of Energy Security Analysis Inc., a consulting firm in Wakefield, Massachusetts. ``Even if we get the bailout, there's no guarantee that it will work.''

Oil fell $10.52, or 9.8 percent, to $96.37 a barrel, on Sept. 29, the biggest slide in percentage terms since Nov. 15, 2001, as the Standard & Poor's index of 500 stocks tumbled the most since the 1987 crash.

`Follow the Leader'

``We're playing follow-the-leader,'' said Tom Bentz, senior energy analyst at BNP Paribas in New York. Oil followed when stocks plunged and rebounded with equities yesterday, he said.

The Standard & Poor's 500 Index rose 58.35 points, or 5.3 percent, to 1,164.74, its biggest rally since July 2002. The Dow Jones Industrial Average jumped 485.21, or 4.7 percent, to 10,850.66 and earlier gained more than 500 points. The Nasdaq Composite Index added 5 percent to 2,082.33.

The euro's drop against the dollar limited the crude rally yesterday, Bentz said. The euro dropped the most yesterday against the dollar since the introduction of the shared currency in 1999 as France and Belgium led a state-backed rescue of Dexia SA, the world's biggest lender to local governments. A falling euro curbs the appeal of commodities as an inflation hedge.

President George W. Bush said the defeat of his plan to revive credit markets ``is not the end of the legislative process,'' and warned lawmakers that they must act or the result will be ``painful and lasting'' economic damage to the country.

Avoiding a `Bloodbath'

``If the legislation is passed, we may avoid another bloodbath in the market,'' Barakat said. ``If it's not passed, prices will easily go below the $90 of a couple of weeks ago.''

Traders are betting the Federal Reserve will cut interest rates next month, potentially shoring up fuel demand. Futures on the Chicago Board of Trade show a 28 percent chance the Fed will trim its 2 percent target rate for overnight lending between banks by 50 basis points on Oct. 29, versus little changed last week. The odds on a quarter-point cut are 72 percent.

Gasoline for November delivery rose 2.73 cents, or 1.1 percent, to $2.4850 a gallon in New York. Yesterday, it settled up 9.62 cents, or 4.1 percent, at $2.4577 a gallon. The October gasoline and heating oil contracts expired yesterday

Heating oil increased 3.03 cents, or 1.1 percent, to $2.9250 a gallon. It rose 10.62 cents, or 3.8 percent, yesterday to $2.8947 a gallon.

Fuel Inventories

U.S. gasoline stockpiles probably fell 2.05 million barrels in the week ended Sept. 26 from 178.7 million barrels the week before, according to the median of 13 analyst estimates before an Energy Department report today. Supplies in the week ended Sept. 19 were the lowest since 1967. Inventory levels prior to 1990 were reported on a monthly basis.

Refineries, production platforms and ports along the Gulf of Mexico were shut this month because of hurricanes Gustav and Ike.

``There's potential upward pressure on prices because of hurricanes and how much production has been disrupted,'' said Tim Evans, an energy analyst for Citi Futures Perspective in New York.

Brent crude oil for November settlement increased $4.19, or 4.5 percent, to settle at $98.17 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.