Oil lower after US bailout plan rejection
Agence France-Presse
First Posted 11:44:00 09/30/2008
Filed Under: Economy, Business & Finance
SINGAPORE -- World oil prices fell slightly in Asia on Tuesday following a nearly 10-percent drop in New York after US legislators dramatically rejected a plan to bail out the ailing financial sector.
The bailout deal proposed the purchase of up to $700 billion worth of tainted mortgage-related assets at the root of a global financial crisis.
Dealers said collapse of the plan further heightened worries of an accelerated slowdown in the already-weak US economy which has been hit by falling home prices and turmoil in its financial sector.
New York's main contract, light sweet crude for November delivery, fell 73 cents to $95.64 a barrel. The contract had tumbled $10.52, or 9.8 percent, to $96.37 a barrel at the close of trade on the New York Mercantile Exchange on Monday.
Brent North Sea crude for November delivery fell 54 cents to $93.44 after dropping $9.56 to settle at $93.98 on Monday in London.
"I think it sort of blends in with the notion that we are heading for some tough times globally," said Jan Lambregts, regional head of research with Rabobank Global Financial Markets.
"That is one of the reasons why oil prices came off so much overnight... We will see more selling pressure on commodities," he said from Hong Kong.
Rejection of the bailout plan sent US blue-chip stocks crashing to their worst single day loss ever and deepened the US financial crisis.
Asian stock markets opened lower in reaction.
Analysts said congressional approval of the bailout, while not perfect, would have bolstered the shaky global financial system which has seen the collapse of Lehman Brothers and forced a sale of Merrill Lynch to Bank of America.
"While the plan did not solve the root cause of the crisis, declining house prices, it would provide important support for the banking system, without which (the) outlook looks even bleaker," said Dariusz Kowalczyk, chief investment strategist with CFC Seymour Securities in Hong Kong.
"In consequence, recession looks more likely, which led to a crash in equity markets on concerns over earnings, and falls in commodities on worries over demand prospects," he said.
Other analysts also painted a gloomy forecast.
"The US is looking at a severe recession if Congress fails to pass some sort of package," said Augustine Faucher at Economy.com.
James Williams, an analyst at WTRG Economics, said downward pressure on oil prices should continue.
"Oil traded for the last five years on fear of supply interruptions. It is now trading on fear of economic collapse," Williams said.
John Kilduff at MF Global agreed. "Expectations for demand are... in doubt with the expected future economic contraction," he said.
Oil prices have already dropped sharply from record high levels above $147 in July on worries that demand is shrinking in a US-led global slowdown.
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