LONDON -- Oil prices fell $5 — reversing direction after Monday's dramatic rally — as
dealers focused on slowing global energy demand and doubts over
a U.S. plan to rescue the financial sector.
A rebound in the U.S. dollar added to weakness across
commodities markets, continuing a strong negative correlation
between the greenback and commodities that has been in place
for at least several months.
U.S. crude for November dropped $5.00 to $104.37 a
barrel by 1703 GMT, after rising nearly $7 Monday. November
Brent crude traded down $5.05 at $100.99.
The losses followed a record surge of nearly 16 percent in
the now-expired U.S. October crude contract Monday. The U.S.
Commodity Futures Trading Commission said it was reviewing the
price jump to ensure trading was valid.
Dealers said Monday's price surge was supported by a weak
dollar plus hopes the $700 billion U.S. bailout plan would ease
the global financial crisis and support demand in the world's
top energy consumer.
But concerns political resistance could delay the rescue
package weighed on global markets Tuesday.
"It started off with a wave of optimism and now perhaps a
bit of realism has kicked in," said Christopher Bellew, a
broker at Bache Commodities.
U.S. Treasury Secretary Henry Paulson urged Congress not to
weigh down the proposed financial system bailout with unrelated
After hitting a record high of $147.27 a barrel in July,
oil dropped to around $91 a barrel last week on mounting
evidence that high energy costs and slowing economic growth
were having an impact on fuel demand in large consuming
U.S. oil consumption is running about 4 percent below last
year, according to the latest government data.
But prices rebounded after Hurricane Ike battered U.S. oil
infrastructure this month. More than 75 percent of production
remains closed in the Gulf of Mexico, home to a quarter of U.S.
A Reuters poll of analysts ahead of weekly U.S. government
inventory data due Wednesday forecast that crude stocks fell
by 1.3 million barrels last week due to disruptions caused by
Distillate stocks were forecast to have fallen by 1.4
million barrels, with gasoline stocks expected to have dropped
by 4 million barrels after Ike shut Gulf Coast refineries.
News that Saudi Arabia cut supplies to oil companies,
reported by Reuters Monday, as well as unrest in Nigeria and
higher-than-expected Chinese imports, also supported prices.
The BP Plc-led Baku-Tbilisi-Ceyhan (BTC) oil
pipeline has shut down for a short period of planned
maintenance, BP said, but exports will not be affected
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