By Grant Smith Oct. 2 (Bloomberg) -- Oil fell for a second day as the dollar reached a one-year high against the euro and U.S. fuel demand dropped to the lowest since the last recession. Crude dropped after Senate approval of a revised bank rescue proposal yesterday bolstered the U.S. currency, dimming the appeal of commodities often used to hedge against a weaker dollar. U.S. fuel use over the past four weeks averaged 19 million barrels a day, the lowest since October 2001, according to Energy Department data. ``Oil should continue its downward slide today as some eyes track the U.S. dollar's strengthening against its European counterparts,'' said Rob Laughlin, senior broker at MF Global Ltd. in London. ``Traders are reflecting on yesterday's negative inventory data showing further decline in end-user demand.'' Crude oil for November delivery fell as much as $2.51, or 2.6 percent, to $96.02 a barrel in electronic trading on the New York Mercantile Exchange. It was at $97.49 a barrel at 12:40 p.m. London time. Oil has fallen 35 percent since reaching a record $147.27 in July on concern the global financial crisis will spread through the economy, sapping energy demand. U.S. manufacturing contracted last month at the fastest pace since 2001 as new auto sales plunged 27 percent. Prices may fall as low as $50 a barrel next year in the event of a ``global recession,'' Merrill Lynch & Co. said in a report today. Such an occurrence is still ``unlikely,'' Merrill said, while reducing its 2009 oil forecast by 16 percent to $90 a barrel. Consumption Falls U.S. oil use is declining faster than expected, while European consumption is falling ``rapidly,'' and production capacity among the Organization of Petroleum Exporting Countries is ``just about to soar,'' Merrill said. Concerns over the financial crisis helped reduce the number of outstanding crude oil futures held by traders on the New York Mercantile Exchange to its lowest in more than two years. Open interest reported by the exchange fell to 1.092 million contracts on Sept. 30, the lowest since July 27, 2006. Yesterday, the November contract dropped $2.11, or 2.1 percent, to settle at $98.53 a barrel after an Energy Department report, which showed crude inventories rose more than forecast last week. Stockpiles climbed 4.28 million barrels to 294.5 million. The House of Representatives may vote on the rescue package tomorrow, said Brendan Daly, a spokesman for House Speaker Nancy Pelosi. The dollar advanced to $1.3876 per euro at 10:56 a.m. in London, from $1.4009 late yesterday in New York. It touched $1.3856 earlier, the strongest since Sept. 18, 2007. Brent crude oil for November settlement fell as much as $2.80, or 2.9 percent, to $92.53 a barrel, on London's ICE Futures Europe exchange. The contract was at $94.02 a barrel at 12:39 p.m. London time. To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

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