Oil Extends Drop After U.S. Senate Can’t Agree on Auto Bailout

Dec. 12 (Bloomberg) -- Crude oil extended losses after the U.S. Senate Majority Leader said the legislature failed to reach an agreement on a bailout for the auto industry.

The negotiations on a plan collapsed, said Senator Harry Reid, in a blow to General Motors Corp. and Chrysler LLC, which may run out of cash early next year. Initial jobless claims in the U.S., the world’s biggest energy user, surged to a 26-year high, a sign that the companies are increasing their firings and the recession may deepen.

“This is seriously bad news,” said Victor Shum, senior principal at consultants Purvin & Gertz Inc. in Singapore. “If the automakers go bankrupt then they’ll be a whole domino impact of potential job losses. If the recession is deepened then surely it will impact demand.”

Crude oil for January delivery fell as much as $2.40, or 5 percent, to $45.58 a barrel in electronic trading on the New York Mercantile Exchange. It was at $45.64 a barrel at 12:06 p.m. Singapore time.

“It’s over with,” Reid said on the Senate floor in Washington. “I dread looking at Wall Street tomorrow. It’s not going to be a pleasant sight.”

Reid said the Senate will take a procedural vote on a House-passed plan, though he doesn’t expect it to be approved.

Brent crude oil for January settlement declined as much as $2.21, or 4.7 percent, to $45.18 a barrel on London’s ICE Futures Europe exchange. It gained yesterday $4.99, or 12 percent, to settle at $47.39 a barrel yesterday, the biggest one-day gain since March 1998.