Crude Oil Rises on Signs U.S. Will Revive Bank Bailout Plan
By Mark Shenk
Sept. 30 (Bloomberg) -- Crude oil rose, rebounding from its biggest drop in seven years, after U.S. lawmakers said they intend to salvage a $700 billion bank-rescue package that may avert an economic slowdown.
Oil fell more than $10 yesterday and global stock markets were battered after the House of Representatives failed to pass a rescue bill and European governments bailed out three banks. The U.S. Senate will try to revive the financial package tomorrow.
``The market is being totally driven by what is happening in Washington,'' said Nauman Barakat, senior vice president of global energy futures at Macquarie Futures USA Inc. in New York. ``What happens to oil prices depends completely on whether the rescue package is approved or not.''
Crude oil for November delivery rose $3.74, or 3.9 percent, to $100.11 a barrel at 1:38 p.m. on the New York Mercantile Exchange. Prices are down 32 percent from the record $147.27 a barrel reached on July 11.
``We won't be seeing oil near $150 anytime soon,'' said Sarah Emerson, managing director of Energy Security Analysis Inc., a consulting firm in Wakefield, Massachusetts. ``Even if we get the bailout, there's no guarantee that it will work.''
Oil yesterday fell $10.52, or 9.8 percent, to $96.37 a barrel, the biggest slide in percentage terms since Nov. 15, 2001, as the Standard & Poor's index of 500 stocks tumbled the most since the 1987 crash.
`Follow the Leader'
``We're playing follow-the-leader,'' said Tom Bentz, senior energy analyst at BNP Paribas in New York. ``When equities plunged yesterday, we followed, and today's stock-market gain is pulling futures higher. The fall of the euro today is limiting the upside of crude.''
The euro dropped the most against the dollar since the introduction of the shared currency in 1999 as France and Belgium led a state-backed rescue of Dexia SA, the world's biggest lender to local governments. The euro fell 2.5 percent to $1.4074 from $1.4434 yesterday. A falling euro curbs the appeal of commodities as an inflation hedge.
President George W. Bush said yesterday's defeat of his plan to revive credit markets ``is not the end of the legislative process,'' and warned lawmakers that they must act or the result will be ``painful and lasting'' economic damage to the country.
``If the legislation is passed, we may avoid another bloodbath in the market,'' Barakat said. ``If it's not passed, prices will easily go below the $90 of a couple of weeks ago.''
Interest Rates
Traders are betting the Federal Reserve will cut interest rates next month, potentially shoring up fuel demand. Futures on the Chicago Board of Trade show a 52 percent chance the Fed will trim its 2 percent target rate for overnight lending between banks by 50 basis points on Oct. 29, versus little chance last week. The odds on a quarter-point cut are 48 percent.
Boone Pickens, founder of BP Capital LLC, said 15 percent of holders of his fund have asked for the option to withdraw funds by the end of the year. The Wall Street Journal reported last week that Pickens was having his worst performance in 10 years, with the fund losing about $1 billion.
Goldman Sachs Group Inc. maintained its three-month crude oil price target of $115 a barrel and said price volatility will increase in the fourth quarter.
``We continue to believe that prices will move higher by the end of this year, but the path is likely to be extremely volatile, given the low level of U.S. inventories against a backdrop of financial and demand concerns,'' Goldman analysts, including London-based Jeffrey Currie, said in a report dated yesterday.
Gasoline for October delivery rose 10.69 cents, or 4.5 percent, to $2.5039 a gallon in New York. Heating oil increased 11.01 cents, or 4 percent, to $2.8705 a gallon.
Fuel Inventories
U.S. gasoline stockpiles probably fell 2.03 million barrels in the week ended Sept. 26 from 178.7 million barrels the week before, according to the median of 12 analyst estimates before an Energy Department report tomorrow. Supplies in the week ended Sept. 19 were the lowest since 1967. Inventory levels prior to 1990 were reported on a monthly basis.
Refineries, production platforms and ports along the Gulf of Mexico were shut this month because of hurricanes Gustav and Ike.
``There's potential upward pressure on prices because of hurricanes and how much production has been disrupted,'' said Tim Evans, an energy analyst for Citi Futures Perspective in New York. ``Gasoline inventories are already at a 41-year low and are expected to decline further.''
Brent crude oil for November settlement increased $3.84, or 4.1 percent, to $97.82 a barrel on London's ICE Futures Europe exchange.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.
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