Rejection of rescue plan pushes oil prices down
— -- Oil prices plummeted nearly 10% Monday as the House rejected the White House's proposed bailout of financial markets, stoking fears of a deep, lingering economic slump that would stifle energy demand.
Light sweet crude for November delivery closed down $10.52 to settle at $96.37 on the New York Mercantile Exchange — the biggest one-day drop since January 1991, the Oil Price Information Service says.
The rescue plan would let the government snap up banks' troubled mortgages, helping credit and capital flow again, and greasing the wheels of the economy.
"Everybody is afraid (the failure to approve the plan) is going to lead to some kind of financial breakdown," says Peter Beutel, president of energy risk management firm Cameron Hanover. "That banks will not be willing to lend money, people will not be willing to do business and they won't have jobs. If people are not working, they're not driving cars."
The bailout's derailment wasn't the only factor weighing on oil prices. Even before news broke of the House vote, crude was headed lower on anticipation of a global economic slowdown and a strengthening dollar, says DTN senior analyst Darin Newsom.
Crude is now off 35% from its July 11 trading high of $147.27. After sinking much of the summer, prices edged up after Hurricanes Gustav and Ike knocked out oil production in the Gulf of Mexico. But oil prices are down 20% the past week as the region's output ratcheted back up and negotiations on the bailout foundered.
Monday's drop will likely be felt at the pump in a few weeks, Beutel says. Wholesale gasoline prices closed down 27 cents at $2.40 Monday. Nationwide, the average price of a gallon of regular gas was $3.64, down 1.2 cents from Sunday, AAA says.
Beutel has been projecting that crude would fall to about $80 a barrel in the next few months, driving gasoline prices to about $3 a gallon. But a financial meltdown, he says, could push prices far lower.
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