Oil drops sharply on failed US rescue for automakers, weak economic numbers

Source: Agencies  |   2008-12-13  |     ONLINE EDITION

OIL prices fell sharply yesterday as a proposed US$14 billion bailout for US automakers collapsed in the Senate. Also dragging down prices was another round of poor economic news as consumers cut back on spending for a record fifth straight month.

Crude's fall capped a volatile week in which prices surged on the back of a weakening dollar, and also the potential for severe production cuts from OPEC.

"We are being torn in a lot of different directions," said Phil Flynn, an analyst at Alaron Trading Corp.

Oil prices fell 7 percent, or US$3.38, to US$44.60 a barrel on the New York Mercantile Exchange.

In London, January Brent crude fell US$3.24 to US$44.15 a barrel on the ICE Futures exchange.

A day after the dollar got crushed on the possibility of a bailout and sent oil prices 10 percent higher Thursday, the market seemed more worried about weak demand on Yesterday after bailout of the automakers failed, Flynn said.

General Motors Corp., Chrysler LLC and Ford Motor Co. failed to secure US$14 billion in emergency loans after efforts collapsed in the Senate late Thursday. The Senate rejected the bailout 52-35 on a procedural vote.

President George W. Bush and the Treasury Department said yesterday they were prepared to act to keep the Detroit Three from failing.

Most industry experts dismissed soaring crude prices this week as an aberration. Before a sell-off yesterday, crude had risen 7 percent this week despite a stream of dour economic reports and predictions of falling demand.

Oil analyst Stephen Schork said in his report yesterday that "when you get a market that is oversold, which was the case for crude oil heading into this week, you get large, seemingly unexplainable spikes in the market. This is what we think we are witnessing this week. Therefore, we will stick to our guns and will maintain our bearish bias."