SINGAPORE - Oil prices fell below $108 a barrel Tuesday in Asia in a choppy market driven by uncertainty about whether a $700 billion U.S. plan to buy bad mortgage debt will stabilize the financial system.
Oil prices had surged Monday in volatile trading, spiking more than $25 a barrel at one point, as investors fled to oil amid unease about the mammoth bailout plan.
"People are looking for a safe haven," said Gerard Burg, a minerals and energy analyst with National Australia Bank in Melbourne. "With all the volatility we've seen in the price, I don't know how much of a safe haven oil really is."
Light, sweet crude for November delivery was down $1.96 to $107.41 a barrel in electronic trading on the New York Mercantile Exchange midafternoon in Singapore. The contract jumped overnight $6.62 to settle at $109.37.
The October contract, which expired Monday, surged as much as $25.45 to $130 a barrel before falling back to settle at $120.92, up $16.37.
The Bush Administration and congressional leaders are negotiating the proposal, which would rescue financial firms from hundreds of billions of debt that plummeted in value when housing prices began to fall in 2006.
The Treasury Department's first draft said that only mortgage-related assets would be purchased. But in a later version, the Treasury secretary asked for the power to expand purchases to troubled assets beyond real estate.
That would conceivably leave taxpayers picking up the tab on things like bad car loans and credit card debt.
Democrats are calling for the measure to limit pay packages for executives of companies helped by the bailout and to allow judges to rewrite mortgages to lower the monthly payments of bankrupt homeowners.
Congressional aides said the House could act on a bailout bill as early as Wednesday, but leaders emerged from a closed-door meeting late Monday with no firm timetable for action.
Concerns that the cost of the bailout could escalate helped push down the dollar Monday. Investors often buy crude futures as a hedge against a weakening dollar and inflation. The 15-nation euro fell Tuesday to $1.4725 from $1.4804 on Monday. The dollar rose slightly to 105.75 yen.
OPEC's decision earlier this month to cut production by 520,000 barrels a day and output shutdowns and damage to oil installations on the Gulf of Mexico coast caused by Hurricane Ike and Gustav have helped spark the jump in oil prices from $90 a barrel last week.
"Those factors are coming back to the fore. They were glossed over a bit by the crisis in financial markets," Burg said. "Crude oil supplies are quite tight at present."
In other Nymex trading, heating oil futures fell 1.8 cents to $3.025 a gallon, while gasoline prices rose 0.12 cent to $2.705 a gallon. Natural gas for October delivery rose 7.6 cents to $7.734 per 1,000 cubic feet.
In London, November Brent crude fell $1.69 to $104.35 a barrel on the ICE Futures exchange.