New Delhi: Oil fell on Thursday but moved up from session lows in response to hopes of agreement on a proposed US $700 billion financial sector bailout plan.
Prices had fallen more than $2 initially, pressured by further evidence of US economic weakness that has begun to affect demand for oil.
US crude traded down 48 cents at $105.25 a barrel by 1511 GMT, after a session low of $103.22. London Brent crude fell 77 cents to $101.68.
President George W Bush called an emergency meeting to hammer out details of the plan to rescue the financial services sector.
US shares rose and the US dollar rebounded against the yen as US Congress moved towards agreement on the financial sector rescue proposal.
But even if the bailout goes ahead, investors remain unsure whether it will prevent the US economy from slowing further.
"The US may be closer to reaching a deal to approve the bailout but there is still a lot of uncertainty on its overall impact on the economy," said an analyst at Australia and New Zealand Bank, Mark Pervan.
A profit warning from US company General Electric and weak US economic data highlighted the fragility of the US economy. Orders for costly US manufactured goods plunged in August and the number of workers filing new claims for jobless benefits shot up last week.
ECONOMIC WEAKNESS
"Until the bailout proposal becomes law, investors will remain reluctant to take big positions in a number of commodity complexes," said analyst at MF Global, Edward Meir.
Economic weakness has already hit oil demand in the United States, the world's biggest energy consumer, and in other developed economies.
This has contributed to a fall in oil prices from a peak of $147.27 struck in July.
A US government report released on Wednesday showed demand in the top oil consuming nation over the past four weeks running 5.3 percent below last year, hit by high fuel costs and the wider economic crisis. Crude oil imports by No. 3 consumer Japan fell 3.3 percent to 4.13 million barrels per day in August from the same month last year, government data showed on Thursday.
"Demand could be a factor but I think macro concerns are really what's moving prices," said Head of Commodities Research at Standard Chartered, Helen Henton.
Analysts said slow recovery in oil and gas production in the US Gulf of Mexico from Hurricane Ike, falling US inventories and lower OPEC supplies would offer support for prices.
US gasoline inventories, for example, are at their lowest since 1967.
But the International Energy Agency sees no need to release emergency supplies. "We don't have to mobilize," IEA Executive Director Nobuo Tanaka said. "The market is now taking care of the current situation."
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