Crude price drops for first time in week
NEW YORK - Crude oil fell for the first time in a week on skepticism that a US government bailout plan for financial companies will bolster economic growth and fuel demand.
Oil dropped as much as 4.9 percent as lawmakers debated how the rescue measure should be structured, threatening early enactment. The October oil contract, which expired Monday, 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 Stamford, Conn. "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 $2.68, or 2.5 percent, to $106.69 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange yesterday. Futures dropped as much as $5.32, the fourth day this month that oil has declined more than $5 a barrel. Prices are down 28 percent from the record trading high of $147.27 a barrel reached on July 11.
Monday, the November contract rose $6.62, or 6.4 percent, to $109.37 a barrel, as oil for October delivery climbed $16.37, or 16 percent, to $120.92 a barrel. Futures 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 sell-off 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."
US 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 12 analysts before an Energy Department report today. Stockpiles dropped 14.2 million barrels in the previous four weeks, according to the department.
Treasury Secretary Henry Paulson is pushing Congress for quick approval of the $700 billion plan to remove illiquid assets from the banking system. Lawmakers have balked at rubber-stamping the proposal, with Democrats demanding it include support for homeowners and limits on executive pay and Republicans questioning the plan's reach and size.
"The Paulson plan isn't getting good reviews," said Rick Mueller, director of oil markets at Energy Security Analysis Inc. in Wakefield, Mass. "There are going to have to be negotiations between Congress and the administration before this is passed. It's unclear what form the legislation will take, which is adding uncertainty to the market."
Lawmakers may seek to include commodity speculation limits in legislation designed to rescue banks after Monday's record gain. Any move to include commodity limits in the legislation risks encountering opposition from the administration and delaying the law.
Oil and other commodities also fell as the dollar increased against the euro for the first time in five days. Commodities jumped Monday when the US currency had its biggest decline since January 2001. Inventors often purchase energy and metals as a hedge against the dollar's drop.
The dollar increased 0.5 percent to $1.4695 per euro, from $1.4774 Monday, when it declined 2.1 percent and touched $1.4866, the weakest since Aug. 22. 