NEW YORK (CNNMoney.com) -- Oil prices tumbled more than $10 a barrel Monday - the second biggest drop in dollar terms ever on an active contract - as the government's proposed $700 billion bailout was defeated by the House, adding to concerns about the spread of economic weakness worldwide.
A stronger dollar also pushed the price of oil lower as turmoil in the European economy undercut the euro and the pound.
Light, sweet crude for November delivery settled down $10.52, or 8.9%, to $96.37 a barrel on the New York Mercantile Exchange. The biggest drop in dollar terms was $10.56 on Jan. 17, 1991.
Monday's price decline comes exactly one week after oil spiked $16.37, marking its largest one-day gain ever, as traders scrambled to buy futures before the expiration of the October contract.
But that rally was "technical in nature" and did not result in any "bullish follow through," said Stephen Schork, oil industry analyst and publisher of the Schork Report.
Instead, the market is "focusing on the real demand destruction in place right now," Schork said.
Economic weakness worldwide, combined with a seasonal downturn in demand for petroleum products, could drive the price of oil to $75 a barrel, according to Schork.
Bailout. Monday's decline came as Congress considered a massive intervention in the financial system.
House lawmakers ultimately voted against the controversial plan, which would have used up to $700 billion in tax dollars to buy tainted mortgage-backed securities from Wall Street companies.
The next steps were unclear. Policymakers were left scrambling to decide whether to renegotiate the bill and introduce it again as soon as Thursday.
Stocks were hit hard by the bailout's failure. The Dow Jones industrial average suffered its steepest one-day point loss ever, plummeting 778 points.
In its current form, the plan seeks to make banks less reluctant to lend money by taking bad mortgage-related assets off of their books. That, according to proponents of the plan, would have helped get the economy back on solid ground.
But the plan was heavily criticized by the public, and lawmakers worked through the weekend to draft a modified version. Among the changes are increased government oversight, limits on executive compensation and provisions for ownership stakes in the companies that benefit from the plan.
Dollar. Oil prices were also pressured Monday by a stronger dollar.
The 15-nation euro fell to buy $1.4428 from $1.4618 late Friday. The U.S. currency also gained ground against the British pound and held steady against the Japanese yen.
Investors often buy crude futures as a hedge against a weak dollar and sell those contracts when the dollar strengthens. And a more robust greenback makes crude less appealing to overseas buyers.
The dollar's strength comes as the crisis on Wall Street appears to be spreading to the European financial system.
In Germany, government regulators and several banks tossed a multibillion euro line of credit to Hypo Real Estate Holding AG in move aimed at preventing the country's second largest commercial property lender from going under.
Over the weekend, the governments of Belgium, the Netherlands and Luxembourg partially nationalized Dutch-Belgian banking giant Fortis NV with a $16.4 billion rescue after investor confidence in the bank evaporated last week.
Gasoline. The national average price for a gallon of gas fell one cent overnight.
Regular gasoline fell to $3.643 a gallon Monday from $3.655 the day before, according to the American Automobile Association's daily survey.
Diesel prices also came down. The national average price for a gallon of diesel fell overnight to $4.084 from $4.095.