London: Oil dropped $2 a barrel on Tuesday, weighed by doubts about the US bailout plan and as investors booked profits after an historic one-day rise in the previous session.
Although oil surged a day earlier on hopes the plan would support the economy and fuel demand, analysts said doubts lingered over how the package would be paid for. The concern also pressured European ans Asian stocks.
US crude for November fell $2.13 to $107.24 a barrel. Brent crude for the same month was off $2.29 to $103.75.
The November US crude contract rose nearly $7 on Monday, while the expiring October contract, which traded up to $25 higher, settled up 15.7% at $120.92 - the biggest one-day gain on record.
The $700 billion plan to shore up the battered US financial system looked set to drag into next week as Washington lawmakers haggled over how exactly they could make Wall Street pay for its rescue.
Oil’s gain on Monday was helped by a drop in the dollar, which can boost the appeal of commodities to investors. The US currency was up slightly on Tuesday against a basket of other major currencies.
Since hitting a record high of $147.27 a barrel in July, oil has tumbled on mounting evidence that high energy costs and slowing economic growth were undercutting global fuel demand.
Oil use in the United States, the world’s biggest consumer, is running about 4% below last year, according to the latest government data.
In a report titled “The world did not run out of crude oil on October expiry”, BNP Paribas’ Harry Tchilinguirian said the prices reached by the October contract were not sustainable in the current economic context.
But developments such as lower Saudi Arabian supply to oil companies, as reported by Reuters on Monday, unrest in Nigeria and higher-than-expected Chinese imports would support prices, Barclays Capital said in a report.