By Christian Schmollinger Dec. 12 (Bloomberg) -- Crude oil extended losses after the U.S. Senate rejected a $14 billion bailout plan for automakers, raising concern that a prolonged recession will reduce fuel demand. The collapse is 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 in a sign that the companies are increasing their firings. “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 $2.84, or 5.9 percent, to $45.14 a barrel in electronic trading on the New York Mercantile Exchange. It was at $45.46 a barrel at 1:04 p.m. Singapore time. Prices plunged almost $2 a barrel in the hour after Senate Majority Leader Harry Reid said the talks on the bailout failed. “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.” The Senate thwarted the rescue package when a bid to cut off debate fell short of the required 60 votes. The vote on ending the discussion was 52 in favor, 35 against. Brent crude oil for January settlement declined as much as $2.69, or 5.7 percent, to $44.70 a barrel on London’s ICE Futures Europe exchange. It climbed $4.99, or 12 percent, to settle at $47.39 a barrel yesterday, the biggest one-day gain since March 1998. Stocks, Commodities Asian stocks and U.S. index futures slumped after Senate Republican and Democrat negotiators failed to agree on a proposal in the bill that would require unionized autoworkers to take a pay cut next year rather than later. The MSCI Asia Pacific Index fell 3 percent to 85.46 as of 12:40 p.m. in Tokyo. Futures on the Standard & Poor’s 500 Index declined 4 percent . Platinum, used in catalytic converters in vehicle exhaust systems, plunged as much as 3.3 percent to $808.50 an ounce after the talks failed. The first simultaneous recession in the U.S., Europe and Japan since World War II has caused oil prices to fall 53 percent this year, snapping six years of gains. The Paris-based International Energy Agency, an adviser to 28 nations, said global oil demand will contract this year for the first time since 1983 and reduced its outlook for 2009. Shrinking Consumption Consumption worldwide will shrink 200,000 barrels a day, or 0.2 percent, in 2008, the IEA said in a report yesterday. Next year’s growth may be wiped out if the economic slump deepens, the agency said. “I would expect demand to continue to fall as the global economic environment continues to worsen through the first half of 2009,” said Jonathan Kornafel, a director for Asia at options trader Hudson Capital Energy in Singapore. “Yesterday’s gain was a bit of an overreaction.” Oil rose yesterday after the Saudi Arabian oil minister said yesterday he had delivered cuts already promised to OPEC, a sign that world supplies are smaller than traders had estimated. Saudi Arabia’s oil production was “absolutely” in line with its Organization of Petroleum Exporting Countries’ quota, al-Naimi said yesterday in an interview in Poznan, Poland, where he was attending climate-protection talks. He declined to comment further on OPEC policy. OPEC Output Al-Naimi said the kingdom pumped 8.493 million barrels of oil a day in November, close to its OPEC production quota of 8.477 million barrels a day. That’s 287,000 barrels a day less than estimated by the IEA. OPEC is set to meet on Dec. 17 in Algeria to discuss further cuts in production. The group agreed to slash output by 1.5 million barrels a day on Oct. 24. “What OPEC is trying to do is pretty clear. They want to get the price to stabilize and then begin to head back up to the $75 level,” said Hudson Capital Energy’s Kornafel. The Saudis “know that the worst thing they could do is say that they are cutting and not have it be true. I would put some stock behind the comments.” To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.

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