Oil fell today on lingering uncertainty about the proposed US $700 billion bank bailout plan plus further evidence of a slump in oil demand in top consumer nations.
US crude traded down $1.62 to $104.11 a barrel by 13.05pm, adding to losses of 88 cents on Wednesday. London Brent crude fell $1.67 to $100.78.
Congress looked close to reaching a deal on the rescue package to tackle the financial crisis and President George W. Bush has called an emergency meeting to hammer out details.
Even if the bailout is passed, investors were unsure how that would prevent the US economy from slowing further after this month's crisis led to the collapse of Lehman Brothers and the bailout of Fannie Mae, Freddie Mac and AIG.
"Until the bailout proposal becomes law, investors will remain reluctant to take big positions in a number of commodity complexes," said Edward Meir, analyst at MF Global, in a report.
The turmoil in financial markets has come on top of slowing oil demand in the United States and other developed economies, which has helped drag crude down from a peak of $147.27 struck in July.
"Demand could be a factor but I think macro concerns are really what's moving prices," said Helen Henton, head of commodities research at Standard Chartered.
A US government report released yesterday showed demand in the top oil consuming nation over the past four weeks running 5.3 per cent below last year, hit by high fuel costs and the wider economic crisis.
Crude oil imports by the third largest consumer Japan fell 3.3 per cent to 4.13 million barrels per day in August from the same month last year, government data showed today.
European stocks were steady, while the dollar fell against a basket of other major currencies.
"The U.S. may be closer to reaching a deal to approve the bailout but there is still a lot of uncertainty on its overall impact on the economy," said Mark Pervan, an analyst at Australia and New Zealand Bank.
Analysts said slow recovery in oil and gas production in the US Gulf of Mexico from Hurricane Ike, falling US inventories and lower OPEC supplies would offer support for prices.
Mexico is temporarily cutting its crude output by 250,000 barrels per day because of shutdowns at US refineries caused by Ike.