Oil seesaws on supply, economic uncertainties

NEW YORK: Oil prices fluctuated Thursday, hovering near $105 a barrel as traders grappled with what impact a pending US financial bailout plan would have on falling domestic energy demand and also monitored supply outages in the Gulf of Mexico.

Light, sweet crude for November delivery fell 16 cents to $105.57 a barrel in morning trading on the New York
Mercantile Exchange, but prices dipped in and out of positive and negative territory. Oil shed 88 cents to settle at $105.73 on Wednesday.

In London, November Brent crude fell 57 cents to $101.88 a barrel on the ICE Futures exchange. The November contract has fallen 4 percent since Monday, snapping a dramatic four-day rally that pushed crude back above the psychologically important $100 mark.

The losses come as investors focus on falling U.S. crude demand. The deepening credit crisis has prompted American consumers and business to cut back on energy consumption, sending demand for gasoline to levels sharply lower than a year ago.

Although a massive government rescue plan aimed at steering the financial system back on solid ground seemed to nearing approval by lawmakers Thursday, analysts said they don't expect crude demand to bounce back in the near term.

``The overall weakness in the U.S. and the global economy is beginning to weigh on traders' minds,'' said Stephen Schork, an analyst and oil market trader in Villanova, Pennsylvania. ``It's very difficult to justify $100 oil with the lack of demand in this economy.''

Oil companies are restaffing Gulf platforms and rigs after the storms plowed through the region, but most production remains offline. Nearly 63 percent of crude output and 57 percent of natural gas production was still shut-in as of Wednesday, the US Minerals Management Service said.

Damage to US Gulf Coast refineries prompted Mexican state oil company Pemex to reduce its daily output by 250,000 barrels a day. The company said it expects production to be back to normal by the end of the week.

OPEC's decision earlier this month to cut production by 520,000 barrels a day and militant threats to Nigerian oil operations have added to the supply shortage and have kept crude prices in check, analysts said.

In Washington, President George W Bush strongly urged Congress to act quickly to pass a $700 billion financial industry bailout, warning Americans in a Wednesday night speech that failing to act fast risks dire economic consequences such as disappearing retirement savings, rising foreclosures, lost jobs and closed businesses. White House officials and lawmakers were meeting Thursday to try to agree on changes to the emergency measures, keeping oil market traders in a holding pattern until the deal is finalized.

``Markets hate uncertainty, and this thing is hanging over everybody's head,'' said Gavin Wendt, head of mining and resources research at consultancy Fat Prophets in Sydney. ``I don't think anyone is too keen to take a position in oil either way right now.''

Oil investors are also eyeing the impact the bailout plan may have on the value of the dollar. Investors often buy crude futures as a hedge against a weakening dollar and inflation.

The dollar inched higher in morning trading on Thursday against the 15-nation euro. The euro bought $1.4656, down slightly from $1.4658 late Wednesday in New York. The dollar slipped to 105.89 Japanese yen from 105.93.

In other Nymex trading, heating oil futures for October delivery fell 3.27 cents to $2.9943 a gallon, while gasoline prices rose 2.13 cents to $2.616 a gallon. Natural gas declined 8.2 cents to $7.826 per 1,000 cubic feet.