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Oil’s Plunge Is Biggest In Dollars Since 1991

THE WALL STREET JOURNAL

SEPTEMBER 30, 2008

Oil’s Plunge Is Biggest In Dollars Since 1991

By GREGORY MEYER

Crude-oil futures plummeted more than $10 a barrel Monday after the House voted down a plan to rescue financial markets, magnifying doubts about demand growth.

Light, sweet crude for November delivery settled $10.52, or 9.8%, lower at $96.37 a barrel on the New York Mercantile Exchange.

Oil futures’ decline was the biggest in dollar terms since Jan. 17, 1991, when oil fell $10.56 as the U.S. opened strategic oil stockpiles during the first war in the Persian Gulf. Crude last settled lower Sept. 16.

[crude-oil futures]

Prices tumbled across the board. Nymex officials halted electronic oil trading for five minutes after the front-month Nymex gasoline contract fell 25 cents, tripping fluctuation limits.

Front-month October reformulated gasoline blendstock, or RBOB, settled 26.81 cents, or 10.1%, lower at $2.3970 a gallon.

The market was under pressure throughout the day, as traders showed little faith that Washington’s tentative deal to buy $700 billion of mortgage assets would do much to stabilize the economy and oil demand. Crude fell further as it became apparent that the bailout wouldn’t progress past the House, which voted 205-228 against the plan.

“A lot of people are very, very concerned this will lead to some sort of financial meltdown and demand will fall even more as businesses go under,” said Peter Beutel, president of Cameron Hanover, an energy-risk management firm in New Canaan, Conn.

The U.S. is consuming about 5% less oil this year than it did in 2007.

Even if the plan eventually passes, observers don’t see consumption staging a comeback.

“We don’t really see this as having all that much impact on petroleum demand,” Citi Futures Perspective energy analyst Tim Evans said in a note. “It may improve the worst-case scenario to some degree, but it will not spark an immediate change in consumer demand for gasoline or other fuels.”

Traders were still surprised by the magnitude of Monday’s selloff.

“This is some serious carnage in the price of oil,” said Peter Donovan, vice president at Vantage Trading on the Nymex floor. “Certainly, the oil market is a good indicator of perceived prospects for the overall economy, and clearly it’s not too optimistic here this Monday.”

Oil markets have seesawed this month as focus shifts between pressure on supply — in the form of hurricanes, an output cut from the Organization of Petroleum Exporting Countries and unrest in Nigeria — and predictions of flagging demand growth.

In other commodity markets:

COPPER: The metal hit its lowest level of the year, as bailouts and takeovers occurred at several European financial institutions. “There are concerns about prospects for slower economic growth related to tighter credit conditions,” said Patricia Mohr, vice president at Scotiabank. Zachary Oxman, senior trader with Wisdom Financial, cited fears of “demand destruction” weighing on most commodities, including base metals, grains and crude oil. Nearby October copper fell 16.75 cents to $2.9175 a pound on the Comex division of the New York Mercantile Exchange, while most-active December fell 16.80 cents to $2.9065. In the thinly traded after-hours activity, copper extended its losses after the U.S. House of Representatives rejected the $700 billion bailout proposal.

GOLD: Futures rallied on safe-haven buying, but lower oil prices and a higher dollar have also weighed on gold, he says. Comex December gold rose $5.90 to settle at $894.40 an ounce. In the lightly traded after-hours session, the contract surged above $925 as the bailout proposal failed.

Write to Gregory Meyer at [email protected]

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