Dirk Lammers, Published February 10 2009
Oil prices fall despite Senate passage of Obama's economic recovery planSIOUX FALLS, S.D. (AP) – Oil prices fell alongside the broader markets Tuesday despite Senate passage of President Obama’s economic recovery plan and a new Treasury Department program to raise more than $1 trillion in public and private funds.
The Dow Jones industrials lost 300 points after Treasury Secretary Timothy Geithner unveiled the rescue plan, and light, sweet crude for March delivery tumbled $1.80 to $37.76 a barrel on the New York Mercantile Exchange.
The Senate’s approval of the $838 billion plan, which now advances to difficult House-Senate negotiations, did little to reverse oil’s downturn.
Phil Flynn, an analyst at Alaron Trading Corp., said investors appear concerned about the inflationary effects of the massive stimulus package.
“People are running to gold as a reaction to the speech and are running away from the stock market. And of course that’s pressuring the oil down,” he said.
As the competing bills worked their way through the House and Senate, the markets initially appeared to rise with each hint of passage. The downturn Tuesday could also be a case of “buy the rumor, sell the fact,” Flynn said.
Crude prices, which closed below $40 for the first time in three weeks Monday, have fallen from record highs over the summer with millions losing their jobs and manufacturers pulling back severely on production.
In its short-term outlook released Tuesday, the U.S. Energy Information Administration said the worsening global economy and a weak consumption means there is plenty of oil on the market, despite recent OPEC cuts.
The EIA said it expects global oil consumption to decline by 1.2 million barrels a day this year but rebound by the same number in 2010.
“OPEC is scheduled to meet in Vienna on March 15, which could lead to another production cut to mitigate some of the slack in the world oil market,” the EIA said in its report. “However, near-month oil prices will likely be driven primarily by the global economy.”
Yet despite government action announced Tuesday, crude continued to trade below $40 per barrel.
The Treasury Department plan could free up credit markets that provide loans to consumers and businesses. Funding for this effort would see a huge increase – from $20 billion up to $100 billion – according to administration officials.
If $100 billion in funding comes into play, it would be enough to support an additional $1 trillion in lending support through a Federal Reserve program.
That action is still pending, however, while the latest economic report from the government was as dour as it was concrete.
The Commerce department said Tuesday that wholesalers slashed inventories by the largest amount in 16 years.
Inventories plunged by 1.4 percent, nearly double analysts’ expectations of 0.8 percent. It also was the fourth straight monthly decline.
Traders have focused on issues that affect spending, such as the inventory report, rather than issue of supply, which have consistently failed to boost the market this year.
Traders largely brushed off comments Monday from OPEC Secretary General Abdalla el-Badri in London Monday that the group would postpone 35 of 150 new oil and gas projects after crude prices have collapsed from near $150 in July.
El-Badri also said the Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global crude supply, has completed about 80 percent of 4.2 million barrels per day of production cuts announced since September.
“The market realized the headlines regarding OPEC were like snow in Minnesota, i.e. they weren’t news,” analyst Stephen Schork wrote. “As such, the market quickly corrected to the lowest level since Christmas Eve.”
On Tuesday, Kuwait’s new oil minister said he expects crude prices to tumble further in the coming weeks and perhaps beyond.
Sheik Ahmed Al Abdullah Al Sabah said it’s too early for his country to decide whether to support another OPEC cut. He expects demand to fall, but said he’s waiting to see if the U.S. economic stimulus package will revive the economy and boost oil demand.
The government releases its next oil inventory report Wednesday and industry experts predict it will show demand continues to wane.
U.S. crude stocks have risen by 27 million barrels over the past month. Crude inventories could grow by as much as 3.4 million barrels Wednesday, according to the average of estimates in a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.
That has not led to savings at the gas pump for many motorists, however.
Refiners have cut production because of falling demand, and retail gas prices have been rising.
On Tuesday, the average national retail price for a gallon of gasoline rose less than a penny to $1.928. That’s 13.6 cents more per gallon than a month ago even though crude prices have fallen more than $6 per barrel in the same time.
Gasoline still costs $1 less than it did last year at this time.
In other Nymex trading, gasoline futures rose less than a penny to $1.3125 a gallon. Heating oil fell 4 cents to $1.3125 a gallon and natural gas for March delivery fell 25 cents to $4.558 per 1,000 cubic feet.
In London, the March Brent contract fell 19 cents to $45.83 on the ICE Futures exchange.
Associated Press Writers Alex Kennedy in Singapore, Jake Neubacher in Vienna and Martin Crutsinger in Washington contributed to this report.
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