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Oil flutters near $98 on US bailout hopes

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[October 02, 2008]  LONDON (AP) -- Oil prices were wavering near $98 a barrel Thursday as expectations the U.S. Congress will pass a revised $700 billion financial industry bailout this week battled to overcome concerns over slowing demand for crude in the world's biggest economy.

DonutsBy midday in Europe, light, sweet crude for November delivery was down 88 cents to $97.65 a barrel in electronic trading on the New York Mercantile Exchange. Prices fell $2.11 overnight to settle at $98.53.

In London, November Brent crude fell $1.23 to $94.10 a barrel on the ICE Futures exchange.

The U.S. Senate late Wednesday approved the rescue bill, 74-25, after adding tax breaks and a provision to raise the cap on federal deposit insurance. The House of Representatives, which rejected an earlier version of the bill Monday, will likely vote on the new version by the end of the week.

"It's probably going to be bullish in the short term if the plan is approved," said Jonathan Kornafel, Asia director for market maker Hudson Capital Energy in Singapore. "It shows we're actually doing something, which would be a reprieve for the market."

The rescue package would let the U.S. government spend billions of dollars to buy bad mortgage-related securities and other devalued assets held by troubled financial institutions, a move designed to allow frozen credit to begin flowing again and prevent a deep recession.

Recent data shows that U.S. fuel demand is falling while supplies rise.

The Energy Department's Energy Information Administration said Wednesday in its weekly report that crude stocks rose by 4.3 million barrels, or 1.5 percent, to 294.5 million barrels for the week ending Sept. 26. Analysts had expected stocks to rise or fall of 1.5 million barrels, according to a survey by energy research firm Platts.

At the same time, gasoline inventories rose by 900,000 barrels, or 0.5 percent, to 179.6 million barrels. Analysts expected stockpiles of the motor fuel to fall in the range of 1 million to 3 million barrels.

Fuel consumption for the four-week period ended Sept. 26 reached about 19 million barrels a day, down 7 percent from the same period a year ago, according to the EIA.

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"The demand just isn't there," Kornafel said. "The refineries aren't buying crude to turn it into gasoline because consumers aren't buying it on the road."

Kornafel predicted oil prices will trade between $80 and $90 during the next few months, with oil producers likely to cut production if prices fall further.

"$75 is a major floor," Kornafel said. "OPEC would certainly react if we go below $80."

Significant gains over the past days by the dollar against the euro also helped push down prices. Investors tend to buy commodities like oil to defend against dollar weakness and a hedge against inflation, but return to the U.S. currency as it strengthens.

The 15-nation euro bought $1.3905 in midday European trading, down from $1.4061 in New York late Wednesday.

In other Nymex trading, heating oil futures fell 2.79 cents to $2.8190 a gallon, while gasoline prices lost 1.95 cents to $2.3405 a gallon. Natural gas for November delivery rose 0.5 cent to $7.733 per 1,000 cubic feet.

[Associated Press; By PABLO GORONDI]

Associated Press writer Alex Kennedy in Singapore contributed to this report.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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