Oil prices fall Tuesday after Senate passes stimulus plan

Oil prices fell alongside the broader markets Tuesday despite Senate passage of President Obama’s economic recovery plan and a new Department of the Treasury program to raise more than $1 trillion in public and private funds.

The Dow Jones industrials lost 300 points after Treasury Secretary Timothy Geithner unveiled the rescue plan, and light, sweet crude for March delivery fell 53 cents to $39.03 a barrel on the New York Mercantile Exchange.

The Senate’s approval of the $838 billion plan, which now advances to difficult House-Senate negotiations, did little to reverse oil’s downturn.

Phil Flynn, an analyst at Alaron Trading Corp., said investors appear concerned about the inflationary effects of the massive stimulus package.

“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.

Crude prices, which closed below $40 for the first time in three weeks Monday, have fallen from record highs 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.”

OPEC has cut production by 970,000 barrels a day, according to a survey of oil industry officials and analysts by Platts, the energy information arm of McGraw-Hill Cos.

Yet production remains well above its target of 24.845 million barrels agreed to at a December meeting.

“It still needs to cut a further 1.7 million barrels per day to reach its target,” said Platts Global Director of Oil John Kingston. “The question now is whether ministers meeting in Vienna in just a month’s time will be willing to give the current agreement time to work or whether there will be calls for new cuts.”