Oil Falls as Stock Losses Signal Concern Over U.S. Bailout Plan

Christian Schmollinger and Grant Smith
Bloomberg
Tuesday, Sept 23, 2008

Crude oil fell for the first time in a week, paring yesterday's record gain, as declining stock indexes signaled investor concern over a U.S. government bailout plan for financial companies.

Oil dropped as the Europe's Dow Jones Stoxx 600 Index slid on speculation growth in the U.S. economy will slow, cutting energy demand. The October oil futures contract, which expired yesterday, had climbed by a record $16 a barrel to the highest since Aug. 21 as traders unwound positions and the dollar declined the most against the euro since January 2001.

``We're seeing a struggle between the strength from the softer dollar and the likelihood of further declines in demand as stock markets around the world fall again,'' said Christopher Bellew, a senior broker at Bache Commodities Ltd. ``I think the latter will prove more important.''

Crude oil for November delivery declined as much as $3.30, or 3 percent, to $106.07 a barrel in electronic trading on the New York Mercantile Exchange. It was at $106.49 a barrel at 10:24 a.m. London time.

Yesterday, the contract rose $6.62, or 6.4 percent, to $109.37 a barrel. The October contract rose $16.37, or 16 percent, to expire at $120.92 a barrel yesterday on the Nymex. It touched $130 in intraday trading, as traders who sold the October contract last week, when oil dipped close to $90, had to buy the futures back.

``There were a number of traders with short positions betting on a price decline,'' said John Vautrain, senior vice president at consultants Purvin & Gertz Inc. in Singapore in an interview with Bloomberg Television. ``So there was a frenzy of buying by people who had to cover and the price went up through the roof.''

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