Crude oil slips on firmer dollar, post-rally profit-taking
Posted: 24 September 2008 0526 hrs

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NEW YORK: Oil prices tumbled on Tuesday, as a stronger dollar and demand worries prompted profit taking a day after New York crude registered its biggest one-day price jump ever.

New York's new main contract, light sweet crude for November delivery, dropped 2.76 dollars a barrel to close at 106.61 dollars.

The October contract on Monday had soared a record 16.37 dollars a barrel to close at 120.92 after climbing as high as 130 dollars.

In London, Brent North Sea crude for November shed 2.96 dollars on Tuesday to settle at 103.08 dollars a barrel. It had jumped 6.43 dollars on Monday.

Growing doubts about a 700-billion-dollar US bailout plan for financial firms weighed on the futures market.

The New York market's massive price gain on Monday had been in part driven by hopes that the rescue plan would save the world's largest economy from collapse, thus bolstering demand for energy.

At the same time, worries about the cost of the rescue to the American economy and whether it would work had pushed the dollar into a steep decline.

Monday's rally was also driven by technical factors because the contract for New York oil deliverable in October had expired on Monday.

"A weak dollar, confusion about the coming bailout plan and continued production outages after a recent hurricane all combined to force hard-pressed holders of short positions to run for cover," said Mike Fitzpatrick, analyst at MF Global.

The dollar's rebound on Tuesday weighed on oil prices, lowering demand for dollar-priced oil from buyers using weaker currencies.

"Oil was lower (on Tuesday), correcting after (Monday's) meteoric and historic rise, with concerns about the US toxic debt bailout plan growing," said Michael Davies at the Sucden brokerage in London.

"There are many, including us, who feel that the optimism we have seen since news of the plan broke last Thursday is unfounded.

"The US plans are still far from certain and will not help the damage to the real economy already done by the recent turmoil, which we are yet to see," he said.

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson told the US Congress in a Senate banking hearing Tuesday that swift passage of the 700-billion-dollar rescue plan was critical to avert a US economic meltdown.

The plan, unveiled just days ago, faces stiff opposition from Democratic and Republican lawmakers. Bernanke and Paulson were to testify to a House of Representatives committee on Wednesday.

"Of course prices will wax and wane with every headline that comes out of the committee hearings this week but prices should hold above 100 dollars and below 120 dollars, at least until the details of the programme emerge," said MF Global's Fitzpatrick.

Supply worries again pressured prices. US crude oil production in the Gulf of Mexico still has not recovered to the normal daily output of 1.3 million barrels, three weeks after hurricanes Gustav and Ike swept the region.

On Tuesday, two-thirds of Gulf production remained off-line, compared with 75 percent on Monday, the US Interior Department said.

"The market is worried about the tight supplies caused by hurricanes Ike and Gustav and to add to those worries there is another tropical storm that could be a problem," said Phil Flynn, analyst at Alaron Trading. - AFP/de