Oil Near $95 a Barrel on Confidence of US Bailout

By  | 

HOUSTON - Oil prices rebounded Friday from steep declines a day earlier with investors confident that a $700 billion U.S. bailout package would get House approval.

There was also more optimism on the Wall Street as Wells Fargo Co. stepped in to buy Wachovia Corp. for $15.1 billion.

Prices had slipped early in the day when the Department of Labor reported that employers slashed payrolls in September by the greatest amount in more than five years, a worrisome sign that the economy is hurtling toward a deep recession.

Figures showed payrolls shrank by 159,000, more than the 100,000 economists predicted. The nation's unemployment rate remained flat at 6.1 percent, as expected.

But the Dow Jones industrial average rose more than 200 points.

"Crude is tailgating a lot of these ongoing financial developments," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates. "It's been closely trailing the swings in the equity markets all week long."

Light, sweet crude for November delivery rose 72 to $94.69 a barrel on the New York Mercantile Exchange.

On Thursday, prices closed at their lowest level in two weeks, tumbling below $94 a barrel on doubts that a revamped bailout plan will be enough to avoid a protracted economic slump. Settling at $93.97 a barrel, the price was the lowest since Sept. 16.

Even if the bailout plan wins approval, oil market traders are skeptical it will revive flagging energy demand — the culprit for oil's steep decline since July.

"I don't think it will be capable of putting a floor under oil prices," Ritterbusch said.

He noted demand deterioration is not only intact, "it's been accentuated by this financial rescue effort and the subprime loan issues."

November Brent crude rose 49 cents to $91.05 a barrel on the ICE Futures exchange.

The U.S. House of Representatives was expected to vote later Friday on the bank rescue package after the U.S. Senate overwhelmingly approved it Wednesday. House lawmakers stunned investors Monday by rejecting the bailout plan.

The Senate added $100 billion in tax breaks and other sweeteners in a bid to win over enough dissenting House votes.

"Approving the bailout may create a little bounce and alleviate the negative sentiment temporarily," said John Vautrain, an energy analyst with consultancy Purvin & Gertz in Singapore. "The problem is U.S. gasoline demand has been off one heck of a lot."

Statistics from the U.S. Labor Department released Thursday showed more signs of a weakening economy, adding to concerns about falling demand.

In a sign of how far consumers are pulling back, retail gasoline prices fell for the 11th week in the last three months. There was a brief pause in price declines because of hurricanes Gustav and Ike, which disrupted supplies in the Gulf of Mexico.

The Energy Information Administration reported that as of Monday, prices fell 8.6 cents to a national average $3.632 a gallon.

That's still 31 percent more than last year, and high gasoline prices continue to squeeze consumers.

On Thursday, the U.S. Commerce Department said factory orders in August plunged by 4 percent compared to July, a much steeper decline than the 2.5 percent drop analysts expected and the biggest setback since a 4.8 percent plunge in October 2006.

"All the indicators have been very negative," Vautrain said. "There's been an economic wallop, and people don't have as much money to spend."

Significant gains over the past days by the dollar against the euro also have helped push down prices, but the greenback lost some ground early Friday.

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 rose to $1.3856 in Friday trading.

In other Nymex trading, heating oil futures rose 0.89 cent to $2.7006 a gallon, while gasoline prices added 0.5 cent to $2.26 a gallon. Natural gas for November delivery fell 5.2 cents to $7.429 per 1,000 cubic feet.


Associated Press writer Pablo Gorondi, in Budapest, Hungary, and Alex Kennedy in Singapore contributed to this report.