A nation holds its breath. The proposed $700bn bailout package from the U.S. treasury is yet to be passed, and until it does economic uncertainty and fear in the markets will continue to prevail.
The world's energy producers, and consumers, watched with a vested interest and choked as House Republicans rejected the plan and left it to congressional leaders to hammer out a compromise to help calm the markets. The news was hard to swallow having come only a few short hours after a public announcement was made claiming that a deal was near completion.
The step backwards in the ratification of Paulson's new 'New Deal' was compounded by the crippling news that federal regulators had seized Washington Mutual and that JP Morgan Chase had acquired the banks $307 billion in assets and $188 billion in deposits. The announcement was another twist in the tale of America's banking collapse. At the current rate, considering their regularity, it will not be long before the public becomes immune to such normally dumbfounding announcements.
The figures are simple; the longer the economy remains under high stress and credit markets remain frozen, the weaker demand for oil will become.
Fuel demand in the U.S. over the last month is down 5.3% compared with the same period last year, according to a government report.
Gene McGillian, an analyst at TFS Energy, said: “The oil market is at the mercy of what is going on in Washington.
“If there isn't an agreement, prices will drop further because the economy will slow further and demand destruction will continue”, he added.
Crude oil for November delivery fell $1.13, (1.1%), to settle at $106.89 a barrel on the New York Mercantile Exchange, on Friday.
Prices remain down 27% from the record $147.27 a barrel reached on July 11, although the futures contract was up 4% for the week.
As Wall Street waits for clarity as to when relief will arrive from Washington, and the economy continues to sag, demand for oil will remain weak, meaning that oil prices are expected to continue falling for the coming week at the very least.
Tom Orr, director of research at Weedon & Co. financial services, said: “Oil traders see what is happening and if the deal does not get cobbled together, the demand side of the equation for gas and crude could be impaired.”
Despite the wave of optimism that followed 'Moses' Paulson, and his stone tablet declaration of toxic asset bailout, down from the top of Mount Sinai it appears that lawmakers are incapable - or perhaps reluctant - to reach settlement on the package. This is just further evidence that the already beleaguered U.S. economy may have to weather a storm of greater strength, and of a more longevity, than either Hurricane Gustav, or Ike, forced the suffering American public to endure.
