Oil rises on bailout worries

NEW YORK (CNNMoney.com) -- Oil prices recovered Thursday as investors worried the government's $700 billion economic rescue plan could lead to a weaker dollar, the currency of oil trading. Crude oil for November delivery settled up $2.29 to $108.02 a barrel on the New York Mercantile Exchange, recovering from a low of $103.22 a barrel as the session opened.Lawmakers were closer to reaching a bipartisan agreement on a controversial $700 billion plan to prop up the nation's ailing financial businesses on Thursday.President Bush addressed the nation late Wednesday, saying the country faces severe economic consequences if Congress doesn't approve the bill.Investors were worried about the plan's effect on U.S. dollar inflation, and about its effect on U.S. debt, according to Rachel Ziemba, energy analyst with RGE Monitor. According to a Wall Street Journal report, Congress wants to break the $700 billion into installments, which would give it more control over how much money leaves government coffers.Demand: Concerns about inflation usually prompt investors to purchase commodities such as crude oil as a hedge. Analysts say prices might have been even higher Thursday were it not for worries about declining demand. "Even if we do bail out (Wall Street), we're not going to see the rapid demand growth we've seen in the past," said Phil Flynn, senior market analyst with Alaron Trading in Chicago.With the economy in a tailspin, investors worry demand for refined fuels could suffer further."Americans are consuming less gasoline, and even consuming less distillates and diesel fuel," said Ziemba.Concern about falling demand has helped drive oil prices down from a record high of $147.27 a barrel on July 11.Gasoline prices continued to fall as well, shedding 1.5 cents Thursday to a national average retail price of $3.70 a gallon, according to motorist group AAA.Gulf shutdowns: Falling U.S. demand is keeping oil prices from skyrocketing, even in the face of lower production in the Gulf of Mexico due to this year's hurricane season, according to Ziemba.A majority of the U.S. facilities in the Gulf of Mexico, which account for about a quarter of all U.S. production, remained shut in the wakes of hurricanes Ike and Gustav.About 63% of crude production and 57% of natural gas production was still offline as of Wednesday, according to the Minerals Management Service.Damage to U.S. refineries in the region also caused Mexican state-owned oil producer Pemex to cut output by 250,000 a day.