Oil prices sank more than $5 to almost $101 a barrel Monday on concerns that economic growth will slow across the globe despite a tentative agreement in Washington on a $700 billion bailout package to stabilize the U.S. financial system.
By the afternoon in Europe, light, sweet crude for November delivery was down $5.55 to $101.34 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.13 to settle at $106.89 on Friday.
Congress agrees to rescue
Congressional leaders and the White House agreed Sunday to a rescue of the ailing financial industry after lawmakers insisted on sharing spending controls with the Bush administration.
The biggest U.S. bailout in history won the tentative support of both presidential candidates and goes to the House of Representatives for a vote Monday.
"The bailout package reduces the chance of a complete meltdown," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "But worries on the demand side will continue to weigh on oil prices."
The plan would give the administration broad power to use hundreds of billions of taxpayer dollars to purchase devalued mortgage-related assets held by cash-starved financial firms.
Congress insisted on a stronger hand in controlling the money than the White House had wanted. The government would take over huge amounts of devalued assets from beleaguered financial companies in hopes of unlocking frozen credit.
"It's still a crisis situation," Shum said. "The market is concerned about the depth and breadth of this global downturn."
JBC Energy in Vienna, Austria, also was cautious about the effects the rescue package could have on U.S. economic growth.
"The latest government reports show sales of new homes at a 17-year low in August and orders for durable goods falling stronger than expected," JBC said in a research note. "It is far from certain that (the bailout) will prevent an economic downturn."
Prices were also pushed down by a stronger dollar. Investors often buy crude futures as a hedge against a weakening dollar and inflation, and sell when the dollar strengthens.
While the dollar gained as details of the bailout package become known, analysts said the euro was weaker also because of growing economic problems in Europe.
"It is also a question of the euro losing ground due to a continued deterioration in the euro zone," said Olivier Jakob of Petromatrix in Switzerland. "With the rate of bank failures increasing in Europe and the economy slowing more rapidly than expected, pressure will continue to mount on the (European Central Bank) to lower (interest) rates."
Euro, dollar drop
The 15-nation euro fell Monday to $1.4366 from $1.4614 on Friday. The dollar fell to ¥105.75 from ¥106.01.
"The bailout should inject confidence in the markets in the short term," Shum said. "Longer term, it increases money supply, inflation and likely weakens the dollar - all of which supports oil prices."
In other Nymex trading, heating oil futures fell 11.99 cents to $2.875 a gallon, while gasoline prices dropped 12.66 cents to $2.5385 a gallon. Natural gas for October delivery fell 13.9 cents to $7.489 per 1,000 cubic feet.
In London, November Brent crude fell $4.64 to $98.90 a barrel on the ICE Futures exchange.