Perth: Oil extended its decline and fell over a dollar to dip below $106 a barrel on Monday, pressured by gains in the US dollar amid optimism that a vote on a $700 billion bailout to rescue the US financial system is near.
Congressional leaders from both parties said they had reached a tentative agreement on Sunday, but questions abound as to whether the rescue plan, which would use taxpayer funds to buy up toxic mortgage debt, would restore confidence to shaky markets and head off a deep recession.
US light crude for November delivery fell $1.09 to $105.85 a barrel, adding to Friday’s losses of $1.13.
London Brent crude fell 82 cents to $102.72.
US lawmakers were gearing up to vote on Monday on creating a $700 billion government fund to buy bad debt and to help ease the financial crisis, while two troubled European banks looked set for nationalisation.
The US dollar rose against the euro and the yen on Monday. Hopes a bailout bill would soon be passed had initially spurred a rally in US stock futures but the index shed its early gains after initial enthusiasm about the plan faded.
Although the oil market has not been short of bullish news in the past few months, prices are still down 28% from record highs above $147 a barrel struck in July as the economic crisis and high fuel costs hurt demand in the United States and other developed economies.
Analysts said mounting evidence of an economic slowdown in US, Europe and Japan would continue to keep prices in check.
“While supply-side uncertainty suggests a floor near $100, the economic context for this quarter and next is weak, suggesting price rallies will be capped and/or sold into,” Harry Tchilinguirian, a senior oil market analyst at BNP Paribas, said in a research report.
News that Iran, the world’s fourth-largest exporter of oil, has avoided new sanctions in a United Nations vote over the weekend also hit prices on Monday.
The UN Security Council unanimously passed a resolution on Saturday that again orders Iran to halt its nuclear enrichment work but imposes none of the new sanctions Washington and its allies wanted.
But analysts said a slow recovery in oil and gas production in the US Gulf of Mexico, home to a quarter of US output, would offer some support for prices in the short term.
Some 57.4% of oil production and 52.8% of natural gas output in the Gulf of Mexico remained shut as of 25 September, the Minerals Management Service said on Friday.