The failure of the proposed $700 billion U.S. bailout bill on Monday has caused oil prices to fall to $95.55 a barrel in Asia on Tuesday. Crude prices scheduled for delivery in November decreased $0.81 in electronic trading on the New York Mercantile Exchange in Singapore.
On Monday, oil prices dropped $10.52 in reaction to the U.S. economic situation. The day’s trading results were the largest percentage drop seen since 2001. In the last seven days, crude prices have plunged almost $25 per barrel, a 20% decrease. Even in London, November Brent crude was down to $93.42 a barrel, a $0.56 drop, on the ICE Futures exchange.
Oil was not the only item that fell in yesterday’s trading. The Dow Jones industrials ended the day with a 777 point reduction, which is the largest drop for a single day’s trading. The reaction on Wall Street was the result of the U.S. House of Representatives’ rejection of the bank bailout package. At this time, officials are attempting to structure a new bailout plan.
“Yesterday’s reaction was justified. There’s a lot of anxiety in the market. I think the market will now likely take a wait-and-see approach until a new emergency package emerges,” stated Mark Pervan, a senior commodity strategist at ANZ Bank in Melbourne. “Even with a new package, conditions remain weak for commodities.”
Pervan anticipates that oil futures will fall to $80 per barrel in the next six months and may even drop as low as $60. Investors are closely watching the strength of the dollar. Some investors will buy crude futures as a hedge against a weak dollar and inflation, and then sell the futures once the dollar again strengthens. The 15-nation Euro remained steady on Tuesday at $1.4424 while the dollar rose to 104.48 yen.
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