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Sept. 29, 2008, 5:35 p.m. EDT

Oil drops more than $10 as bailout plan fails to pass

Move marks second-largest daily dollar drop; reformulated gas hits limit

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By Polya Lesova and Myra P. Saefong, MarketWatch

SAN FRANCISCO (MarketWatch) -- Crude futures closed with a loss of more than $10 per barrel Monday, ending the session at a nearly two-week low with the rejection of the U.S. government's bailout plan to stem the banking crisis feeding concerns about slowing global economic growth and weaker demand for oil.

Crude for November delivery dropped $10.52, or 9.8%, to close at $96.37 a barrel on Nymex. It was at its weakest closing level since Sept. 16.

In dollar terms, the futures marked their second-largest one-day drop on the New York Mercantile Exchange. The largest was set in January 1991 at a daily loss of $10.56, according to FactSet Research.

The failure of the bailout plan's passage "will drop the oil price some more ... because oil traders perceive this will hurt the economy -- and as a result reduce oil demand," said Charles Perry, president of Perry Management, an energy-consulting firm.

The bottom for oil prices is probably around $90 now, but prices could go lower in the next month or two, he added.

The dollar's rally against the euro and the British pound Monday added further pressure to dollar-denominated oil prices. The dollar index /zigman2/quotes/210598269/delayed DXY +0.05% , a measure of the greenback against a trade-weighted basket of six major currencies, rose 77.466, from 76.989 in North American trading late Friday. See Currencies.

As of 4:40 p.m. EDT, November crude was at $95.40 in electronic trading on Globex.

According to Nymex rules, if a crude-futures contract is offered at the limit of $10 per barrel for five minutes, trading is halted for five minutes.

According to Nymex rules, if a crude-futures contract on the trading floor in the pit is offered at the limit of $10 per barrel for five minutes, trading is halted for five minutes.

But a Nymex representative said that at 1:45 p.m. EDT, the reformulated-gasoline contract hit its limit drop of 25 cents in electronic trading, but not in the Nymex trading pit. Nymex wasn't obligated to halt floor trading, but at the time were no trades in the pit, Nymex said.

Heating oil, crude oil and reformulated gasoline are "linked" so that when the reformulated-gas limit move was reached, limits were reset for all three, with crude's daily fluctuation limit reset to $20 at that point, according to Nymex.

On Nymex Monday, November reformulated gasoline fell 25.4 cents, or 9.7%, to close at $2.3615 a gallon and November heating oil dropped 22.9 cents, or 7.6%, to finish at $2.7885 a gallon.

Natural gas for November delivery dropped 40.7 cents, or 5.3%, to close at $7.221 per million British thermal units.

Crude prices are nearly unchanged year to date. Crude futures ended last year at $95.98.

"Fear of a global slowdown is driving investors to dump everything except gold overboard," said Sean Brodrick, a natural-resources analyst at MoneyandMarkets.com.

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