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NEW YORK -- Oil prices fell just over $1 a barrel Friday as a U.S.financial bailout plan remained stuck in legislative limbo, raisinginvestor worries that the economic crisis could deepen and furthererode domestic energy demand.
Crude's fall erased some of the previous day's gains, though priceshave largely been in a holding pattern as oil traders awaitresolution on the stalled the $700 billion rescue package.
"There's really no impetus to push things higher or lower. Themarket is simply waiting for guidance from the bailout plan," saidJim Ritterbusch, president of energy consultancy Ritterbusch andAssociates in Galena, Ill.
Negotiations continued Friday to revive the White House-backedinitiative, a day after talks broke down in heated disagreementover the scope and cost of the unprecedented governmentintervention. The measure would remove billions of dollars in badmortgages and other risky assets from banks' balance sheets in abid to calm frenetic financial markets and soothe a jittery public.
Some conservative GOP lawmakers Thursday denounced the plan as anunnecessary federal intrusion into the private sector and proposeda dramatically different scheme under which financial firms withbad assets would pay the Treasury to insure them, rather than sellthem outright to the government. It was unclear what form the finalproposal would take, though lawmakers from both parties reportedmaking progress on a plan late Friday.
Still, the prospect of a deal being scuttled or delayed rattledinvestors who were counting on the capital infusion to steady theteetering financial system. Any further softening in the economycould lead to widespread layoffs, in turn forcing Americans todrive less and eating into already flagging fuel use in the world'slargest consumer.
"Refiners would demand less crude because their customers aredemanding less gasoline and diesel, and that would work its waythrough the system," Ritterbusch said.
Light, sweet crude for November delivery fell $1.13 to settle at$106.89 on the New York Mercantile Exchange, after earlier dippingas low as $104.25. Crude rose $2.29 to settle at $108.02 onWednesday.
Weak U.S. demand for fuel has helped send crude down 27 percentsince price surged to a record $147.27 on July 11.
In other commodities, gold and silver prices jumped as unease overthe bailout prospects prompted another round of safe-haven buying.
Friday's losses were limited by tight global supply, especially inthe U.S., where the impact of Hurricane Ike and Gustav is stillbeing felt on Gulf of Mexico oil operations.
Oil companies are redeploying workers to Gulf platforms and rigsafter the storms tore through the region, but most productionremains offline. About 57 percent of crude output and about 53percent of natural gas production was still shut-in as of Friday,the U.S. Minerals Management Service said. The Gulf area is home toquarter of U.S. crude production and 15 percent of its natural gas.
U.S. refining capacity continues to ramp up after the storms,sending pump prices lower. A gallon of regular fell 1.7 centsovernight to a new national average of $3.686, according to autoclub AAA, the Oil Prices Information Service and Wright Express.
Still, damage to U.S. Gulf Coast refineries prompted Mexican stateoil company Pemex to reduce its daily output by 250,000 barrels aday. The company said it expects production to be back to normal bythe end of the week.
OPEC's decision earlier this month to cut production by 520,000barrels a day and militant threats to Nigerian oil operations haveadded to the supply shortage, though the uncertainties surroundingthe U.S. economy have largely overshadowed that concern.
"All of the supply dislocations in the Gulf and elsewhere aretaking a back-seat to the financial developments," Ritterbuschsaid.
In other Nymex trading, gasoline futures fell 3.22 cents to settleat $2.6651 a gallon, while heating oil futures fell 3.09 cents tosettle at $3.0174 a gallon. Natural gas futures fell 30.3 cents tosettle at $7.628 per 1,000 cubic feet. The October contract expiredat the end of the day, adding to the volatility.
In London, November Brent crude fell $1.06 to settle at $103.54 abarrel on the ICE Futures exchange.