Oil up after bailout vote but erases earlier gains

Oil was up $1 a barrel yesterday after the US Senate approved a $700 billion bailout of the US financial industry, but erased…

Oil was up $1 a barrel yesterday after the US Senate approved a $700 billion bailout of the US financial industry, but erased earlier gains as concerns remained over weakening demand and growing supplies in the US.

The package for Wall Street, which has yet to be approved by the House of Representatives, rekindled hopes that the credit crisis can be eased, but traders and analysts said the supportive impact would be limited as eyes remained on falling demand.

US light crude for November delivery rose $1.03 to $99.56 by 3.29am, having risen as high as $100.37 before the vote. It settled down a hefty $2.11 at $98.53 on yesterday when US government data showed supplies rising and on a firmer dollar.

London Brent was up 92 cents at $96.25.

"It should stabilize the equity markets so crude prices will get some support from it. But if demand falls off a cliff, bets are off. I think we will congest here for a while and then it is up to the economy and winter demand," said Tony Nunan, risk management executive at Tokyo-based Mitsubishi Corp.

Oil prices have tumbled from record highs above $147 a barrel in July on signs of slowing oil demand from industrial economies.

Pressure has also come as investors sell oil and other commodities and move cash into safer investments amid turmoil in financial markets.

US government data yesterday showed crude oil inventories up 4.3 million barrels last week as output from the Gulf of Mexico continued to recover from disruptions caused by Hurricane Ike.

Gasoline inventories also showed a surprise 900,000-barrel rise as more refinery capacity came back online following the storm, which caused the worst disruption to the US energy sector since the 2005 hurricane season, the US data from the Energy Information Administration showed.

Rising supplies compounded falling demand with total US oil product demand over the past four weeks down 7.1 per cent from a year earlier, as the growing economic crisis and high fuel costs have continued to clip demand in the world's top consumer.

The bailout vote failed to lift market significantly so far.

Reuters