SIOUX FALLS, South Dakota: Oil prices fell alongside the broader markets Tuesday with few details released about a Treasury Department program to raise more than $1 trillion in public and private funds to free up credit markets.
The Dow Jones industrials lost 400 points after Treasury Secretary Timothy Geithner announced the rescue plan, and light, sweet crude for March delivery tumbled $2.01 to settle at $37.55 a barrel on the New York Mercantile Exchange.
It was the second day crude settled below $40, a price last seen three weeks ago.
President Barack Obama's $838 billion economic recovery plan, which was approved by the Senate on Tuesday, did little to reverse oil's downturn.
Phil Flynn, an analyst at Alaron Trading Corp., said investors appear concerned about the inflationary effects of massive government spending.
"People are running to gold as a reaction to the speech and are running away from the stock market. And of course that's pressuring the oil down," he said.
As the competing bills worked their way through the House and Senate, the markets initially appeared to rise with each hint of passage.
The downturn Tuesday could also be a case of "buy the rumor, sell the fact," Flynn said.
Crude prices have fallen from record highs near $150 per barrel over the summer with millions losing their jobs and manufacturers pulling back severely on production.
In its short-term outlook released Tuesday, the U.S. Energy Information Administration said the worsening global economy and a weak consumption means there is plenty of oil on the market, despite recent OPEC cuts.
The EIA said it expects global oil consumption to decline by 1.2 million barrels a day this year but rebound by the same number in 2010.
"OPEC is scheduled to meet in Vienna on March 15, which could lead to another production cut to mitigate some of the slack in the world oil market," the EIA said in its report.
"However, near-month oil prices will likely be driven primarily by the global economy."
The Treasury Department plan could free up credit markets that provide loans to consumers and businesses.
Funding for this effort would see a huge increase - from $20 billion up to $100 billion - according to administration officials.
If $100 billion in funding comes into play, it would be enough to support an additional $1 trillion in lending support through a Federal Reserve program.
That action is still pending, however, while the latest economic report from the government was as dour as it was concrete.
The Commerce department said Tuesday that wholesalers slashed inventories by the largest amount in 16 years.
Inventories plunged by 1.4 percent, nearly double analysts' expectations of 0.8 percent. It also was the fourth straight monthly decline.
Traders have focused on issues that affect spending, like the latest inventory report, rather than issues of supply, which have consistently failed to boost the market this year.
Traders largely brushed off comments Monday from OPEC Secretary General Abdalla el-Badri in London Monday that the group would postpone 35 of 150 new oil and gas projects after crude prices have collapsed from near $150 in July.
El-Badri also said the Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global crude supply, has completed about 80 percent of 4.2 million barrels per day of production cuts announced since September.
"The market realized the headlines regarding OPEC were like snow in Minnesota, i.e. they weren't news," analyst Stephen Schork wrote.
"As such, the market quickly corrected to the lowest level since Christmas Eve."
On Tuesday, Kuwait's new oil minister said he expects crude prices to tumble further in the coming weeks and perhaps beyond.
Sheik Ahmed Al Abdullah Al Sabah said it's too early for his country to decide whether to support another OPEC cut.
He expects demand to fall, but said he's waiting to see if the U.S. economic stimulus package will revive the economy and boost oil demand.
The government releases its next oil inventory report Wednesday and industry experts predict it will show demand continues to wane.
U.S. crude stocks have risen by 27 million barrels over the past month.
Crude inventories could grow by as much as 3.4 million barrels Wednesday, according to the average of estimates in a survey of analysts by Platts, the energy information arm of McGraw-Hill Cos.
In other Nymex trading, gasoline futures fell less than a penny to settle at $1.2439 a gallon.
Heating oil fell 5 cents to settle at $1.3014 a gallon and natural gas for March delivery fell 26.4 cents to settle at $4.543 per 1,000 cubic feet.
In London, the March Brent contract tumbled $1.41 cents to settle at $44.61 on the ICE Futures exchange. - AP
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