AP
Oil prices down a buck as bailout talks continue
Friday September 26, 3:37 pm ET
By Stevenson Jacobs, AP Business Writer
Oil prices decline slightly as US bailout talks continue, weigh on demand outlook


NEW YORK (AP) -- Oil prices fell just over $1 a barrel Friday as a U.S. financial bailout plan remained stuck in legislative limbo, raising investor worries that the economic crisis could deepen and further erode domestic energy demand.

Crude's fall erased some of the previous day's gains, though prices have largely been in a holding pattern as oil traders await resolution on the stalled the $700 billion rescue package.

"There's really no impetus to push things higher or lower. The market is simply waiting for guidance from the bailout plan," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill.

Negotiations continued Friday to revive the White House-backed initiative, a day after talks broke down in heated disagreement over the scope and cost of the unprecedented government intervention. The measure would remove billions of dollars in bad mortgages and other risky assets from banks' balance sheets in a bid to calm frenetic financial markets and soothe a jittery public.

Some conservative GOP lawmakers Thursday denounced the plan as an unnecessary federal intrusion into the private sector and proposed a dramatically different scheme under which financial firms with bad assets would pay the Treasury to insure them, rather than sell them outright to the government. It was unclear what form the final proposal would take, though lawmakers from both parties reported making progress on a plan late Friday.

Still, the prospect of a deal being scuttled or delayed rattled investors who were counting on the capital infusion to steady the teetering financial system. Any further softening in the economy could lead to widespread layoffs, in turn forcing Americans to drive less and eating into already flagging fuel use in the world's largest consumer.

"Refiners would demand less crude because their customers are demanding less gasoline and diesel, and that would work its way through the system," Ritterbusch said.

Light, sweet crude for November delivery fell $1.13 to settle at $106.89 on the New York Mercantile Exchange, after earlier dipping as low as $104.25. Crude rose $2.29 to settle at $108.02 on Wednesday.

Weak U.S. demand for fuel has helped send crude down 27 percent since price surged to a record $147.27 on July 11.

In other commodities, gold and silver prices jumped as unease over the bailout prospects prompted another round of safe-haven buying.

Friday's losses were limited by tight global supply, especially in the U.S., where the impact of Hurricane Ike and Gustav is still being felt on Gulf of Mexico oil operations.

Oil companies are redeploying workers to Gulf platforms and rigs after the storms tore through the region, but most production remains offline. About 57 percent of crude output and about 53 percent of natural gas production was still shut-in as of Friday, the U.S. Minerals Management Service said. The Gulf area is home to quarter of U.S. crude production and 15 percent of its natural gas.

U.S. refining capacity continues to ramp up after the storms, sending pump prices lower. A gallon of regular fell 1.7 cents overnight to a new national average of $3.686, according to auto club AAA, the Oil Prices Information Service and Wright Express.

Still, damage to U.S. Gulf Coast refineries prompted Mexican state oil company Pemex to reduce its daily output by 250,000 barrels a day. The company said it expects production to be back to normal by the end of the week.

OPEC's decision earlier this month to cut production by 520,000 barrels a day and militant threats to Nigerian oil operations have added to the supply shortage, though the uncertainties surrounding the U.S. economy have largely overshadowed that concern.

"All of the supply dislocations in the Gulf and elsewhere are taking a back-seat to the financial developments," Ritterbusch said.

In other Nymex trading, gasoline futures fell 3.22 cents to settle at $2.6651 a gallon, while heating oil futures fell 3.09 cents to settle at $3.0174 a gallon. Natural gas futures fell 30.3 cents to settle at $7.628 per 1,000 cubic feet. The October contract expired at the end of the day, adding to the volatility.

In London, November Brent crude fell $1.06 to settle at $103.54 a barrel on the ICE Futures exchange.