Oil Falls As US Bailout Talks Falter

By: AP
By: AP

NEW YORK - Oil prices pulled back Friday as political rancor threw a U.S. financial bailout proposal into disarray, deepening investor fears of a protracted and painful economic downturn that would further erode U.S. energy demand.

Light, sweet crude for November delivery fell $2.47 to $105.55 in early trading on the New York Mercantile Exchange, after earlier dipping as low as $104.25. Crude's fall wiped out the previous day's advance of $2.29 to $108.02.

Investors are worried after negotiations among congressional leaders broke down late Thursday. Democrats blamed the House Republicans for the apparent stalemate. Conservative GOP lawmakers have complained that the plan would be too costly for taxpayers and would be an unacceptable federal intrusion into private business.

"The bailout is a real focus of the market because it's seen as being quite important to the direction of the economy," said David Moore, a commodity strategist at Commonwealth Bank of Australia in Sydney.

The U.S. financial crisis has forced consumers and businesses to cut back on energy use in the world's largest economy.

Talks were continuing Friday on the effort to bail out failing financial institutions and restart the flow of credit that has begun to starve the national economy.

Friday's losses were limited by tight global supply, especially in the U.S., where the impact of Hurricane Ike and Gustav is still being felt on Gulf of Mexico oil operations.

Oil companies are restaffing Gulf platforms and rigs after the storms plowed through the region, but most production remains offline. Nearly 63 percent of crude output and 57 percent of natural gas production was still shut-in as of Wednesday, the U.S. Minerals Management Service said.

Damage to U.S. Gulf Coast refineries prompted Mexican state oil company Pemex to reduce its daily output by 250,000 barrels a day. The company said it expects production to be back to normal by the end of the week.

"The hurricanes and their aftermath have disrupted production," Moore said. "It's run down stocks in the U.S. and tightened market conditions."


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