Oil steadied at just above $96 a barrel on Tuesday, after slumping almost 10 percent in the previous session as fear gripped financial markets in the wake of U.S. lawmakers' shock rejection of a $700 billion rescue plan, Reuters reported.
Asian stock markets also tracked Wall Street's decline, which saw the Dow Jones industrial average post a record point drop after lawmakers voted against the financial industry bailout and major U.S. and European banks needed emergency deals to stave off collapse.
U.S. light crude for November delivery fell 11 cents to $96.26 a barrel by 1:43 a.m., after dropping $10.52 on Thursday to $96.37 -- the second biggest fall since April 23, 2003.
London Brent crude fell 68 cents to $93.30.
"It was a surprise that Congress rejected the bailout and its just reinforcing the belief that the U.S. economy is really heading towards a downward spiral. That means the demand side of the equation for oil will deteriorate rapidly," said Toby Hassall, chief analyst at Commodity Warrants Australia in Sydney.
"Its just getting worse and worse and no one knows when this is going to end."
Oil has fallen about 35 percent since its $147 peak in mid-July, amid signs that high energy prices and the U.S. financial crisis have cut into crude demand in the United States and other industrialised nations.
In addition, oil has also been dragged down as investors, who had rushed into commodities earlier this year as a hedge against inflation and the weak dollar, sold crude for safer havens.
The House voted 228-205 to reject the bailout bill, which would have authorized the Treasury Department to purchase broken mortgage-backed bonds from banks with the goal of jump-starting stalled capital markets.
Analysts said the spread of credit problems to Europe was also stoking fears that the financial turmoil, which started with risky lending to the overheated U.S. property market, had gone rapidly global.
"Slower international economic growth is bound to dent oil demand," said David Moore, a commodities analyst at the Commonwealth Bank of Australia.
Separately, oil and gas production in the Gulf of Mexico continued to increase on Monday as companies brought their facilities back on line after Hurricane Ike, the Minerals Management Service said.
Some 48 percent of U.S. oil production in the Gulf of Mexico and 47.4 percent of the region's natural gas output remained shut, down from 57.4 percent and 52.8 percent respectively.
