Oil prices fell Wednesday as fears of falling demand for oil and gasoline trumped expectations that U.S. lawmakers will pass a revised bank bailout plan that they rejected earlier this week.
By the afternoon in Europe, light, sweet crude for November delivery was down $1.95 to $98.69 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $4.27 to settle at $100.64 on Tuesday.
Wednesday's session continued to show the price swings and frequent reversals in direction seen in previous days, with the Nymex contract trading as high as $102.84 before retreating.
"In a low volume environment, the intraday volatility (of the Nymex contract) remains extremely high," said Olivier Jakob of Petromatrix in Switzerland.
Based on the revisions to July demand data by the U.S. Department of Energy and continued falling figures for vehicular traffic, Jakob said lower U.S. demand was "not going to be overridden by lawmakers voting to buy the (banks') toxic assets."
Jakob cited data from Federal Highway Administration, showing that road travel fell 3.6 percent on the year in July, while so far in 2008 it was down 3 percent. DOE data said gasoline consumption in July was 5.9 percent lower than during July 2007, while July oil demand was 1.3 million barrels a day lower than in the same month a year ago.
"We have to go back 10 years to find a level of demand so low for a month of July," Jakob said.
U.S. Senate leaders scheduled a vote for Wednesday on a version of the emergency bill that adds substantial tax cuts meant to appeal to Republicans when it reaches the House of Representatives. The House rejected a similar $700 billion plan Monday by a vote of 228-205.
But traders were skeptical a bailout of bad mortgage debt would quickly reverse slowing global economic growth and weakening demand for crude.
"It would be good news to avoid further turmoil, but it's too early to assume a new package would lead to a recovery in the U.S.," said Tetsu Emori, commodity markets fund manager at ASTMAZ Futures Co. in Tokyo.
A slump in energy demand has accelerated in Asia. In India, domestic oil product sales totaled 2.41 million barrels per day in August, the lowest level this year, according to Barclays Capital research. In the same month, Japan's oil demand fell by 8.4 percent.
Investors also have an eye on the weekly oil inventories report to be released later Wednesday from the U.S. Energy Department's Energy Information Administration.
The petroleum supply report was expected to show that oil stocks rose as much as 1.5 million or fell as much as 1.5 million barrels, according to the average of analysts' estimates in a survey by energy information provider Platts.
The Platts survey also showed that analysts projected gasoline inventories fell between 1 million and 3 million barrels and distillates went down between 1 million and 2 million barrels last week.
"I'm pessimistic," Emori said. "I think the U.S. is already in a recession."
The continuing strengthening of the dollar also helped push down oil prices.
Investors tend to buy into commodities like oil when the dollar weakens and as a hedge against inflation and usually sell those investments when the greenback gains.
On Wednesday, the euro fell to $1.4004 from $1.4083 late Tuesday in New York. The dollar also rose against the Japanese yen, to 106.25 yen from 106.03 yen in the previous session.
In other Nymex trading, heating oil futures fell 2.75 cents $2.8672 a gallon, while gasoline prices lost 3.77 cents to $2.42 a gallon. Natural gas for November delivery rose 4.4 cents to $7.482 per 1,000 cubic feet.
In London, November Brent crude fell $2.15 to $96.02 a barrel on the ICE Futures exchange.