NEW YORK – Oil prices plunged over $10 a barrel Monday as a U.S. financial bailout plan failed to win legislative approval, increasing fears tat a prolonged economic downturn that could sharply curtail energy demand.
Light, sweet crude for November delivery sank $10.52 to settle at $96.36 on the New York Mercantile Exchange, after earlier dropping as low as $95.04.
It was crude's lowest trading level since prices edged back below $100 earlier this month; crude previously hadn't traded that low since February.
Crude has fallen almost $25, or 20 percent, in the past week amid intense bi-partisan talks to to work out the $700 billion bank rescue plan.
Monday's drop came as House lawmakers defeated the emergency measure that would have absorbed billions of dollars in banks' bad mortgage-related debt and other risky assets in an effort to steady the teetering U.S. economy.
The plan's apparent failure added to oil market traders' worries that any further softening in the U.S. economy will prod consumers at home and abroad to cut back on driving and other energy consumption.
"This is an acknowledgment that the global slowdown is here and energy demand is not going to be what it was," said Phil Flynn, analyst at Alaron Trading Corp. in Chicago.
In another sign of declining U.S. demand for fuel, pump prices kept falling Monday. A gallon of regular slipped about a penny overnight to a new national average of $3.643, according to auto club AAA, the Oil Price Information Service and Wright Express.
They peaked at $4.114 on July 17.
Prices could come down as U.S. Gulf Coast energy output ramps up following the passage of Hurricanes Ike and Gustav.
About 57 percent of crude oil production and 53 percent of natural gas output remained shut-in after shutdowns prompted by the storms, according to the U.S. Minerals Management Service.
The rescue plan would have given the administration broad power to use hundreds of billions of taxpayer dollars to purchase devalued mortgage-related assets held by cash-starved financial firms.
Congress insisted on a stronger hand in controlling the money than the White House had wanted. The government would have taken over huge amounts of devalued assets from beleaguered financial companies in hopes of unlocking frozen credit.
Oil prices were also pushed down by a stronger dollar. Investors often buy crude futures as a hedge against a weakening dollar and inflation, and sell when the dollar strengthens.