Oil prices fell more than $2 a barrel Thursday on worries that demand for crude will erode further and the dollar strengthened against the euro. But trading was volatile.
By the midafternoon in Europe, light, sweet crude for November delivery was down $2.10 to $96.43 a barrel in electronic trading on the New York Mercantile Exchange after briefly falling below $96.
Earlier in the session, prices had risen above $100 on expectations the U.S. Congress will pass a revised $700 billion financial industry bailout this week. It is hoped the proposal could ease tight credit conditions and allow banks to lend more money.
The November crude contract fell $2.11 to settle at $98.53 on Wednesday.
Statistics from the U.S. Labor Department released Thursday showed more signs of a weakening economy, adding to concerns about falling oil demand.
The Labor Department reported that initial claims for jobless benefits increased by 1,000 to a seasonally adjusted 497,000, significantly above analysts' estimate of 475,000. The total is the highest since just after the Sept. 11 terrorist attacks seven years ago.
Significant gains over the past days by the dollar against the euro have helped push down prices. Investors tend to buy commodities like oil to defend against dollar weakness and a hedge against inflation, but return to the U.S. currency as it strengthens.
The 15-nation euro bought $1.3773 in afternoon European trading, down from $1.4061 in the previous session.
The U.S. Senate late Wednesday approved the rescue bill, 74-25, after adding tax breaks and a provision to raise the cap on federal deposit insurance. The House of Representatives, which rejected an earlier version of the bill Monday, will likely vote on the new version by the end of the week.
"It's probably going to be bullish in the short term if the plan is approved," said Jonathan Kornafel, Asia director for market maker Hudson Capital Energy in Singapore. "It shows we're actually doing something, which would be a reprieve for the market."
The rescue package would let the U.S. government spend billions of dollars to buy bad mortgage-related securities and other devalued assets held by troubled financial institutions, a move designed to allow frozen credit to begin flowing again and prevent a deep recession.
Recent data shows that U.S. fuel demand is falling while supplies rise.
The Energy Department's Energy Information Administration said Wednesday in its weekly report that crude stocks rose by 4.3 million barrels, or 1.5 percent, to 294.5 million barrels for the week ending Sept. 26. Analysts had expected stocks to rise or fall of 1.5 million barrels, according to a survey by energy research firm Platts.
At the same time, gasoline inventories rose by 900,000 barrels, or 0.5 percent, to 179.6 million barrels. Analysts expected stockpiles of the motor fuel to fall in the range of 1 million to 3 million barrels.
Fuel consumption for the four-week period ended Sept. 26 reached about 19 million barrels a day, down 7 percent from the same period a year ago, according to the EIA.
"The demand just isn't there," Kornafel said. "The refineries aren't buying crude to turn it into gasoline because consumers aren't buying it on the road."
Kornafel predicted oil prices will trade between US$80 and US$90 during the next few months, with oil producers likely to cut production if prices fall further.
"Seventy-five dollars is a major floor," Kornafel said. "OPEC would certainly react if we go below US$80."
In other Nymex trading, heating oil futures fell 4.69 cents to $2.80 a gallon, while gasoline prices lost 3.89 cents to $2.3211 a gallon. Natural gas for November delivery rose 0.7 cent to $7.735 per 1,000 cubic feet.
In London, November Brent crude fell $3.03 to $92.30 a barrel on the ICE Futures exchange.