Oil Prices Skyrocket in Biggest One Day Spike Ever

As Wall Street continues to plummet, APF reports that crude oil prices skyrocketed yesterday, in the biggest one-day dollar gain on record in New York trade soaring 16.37 dollars a barrel, or 16 percent, to close at 120.92 dollars, boosted by a massive US financial bailout plan and a decline in the dollar. The scale of the New York market rally was historical. Monday's dollar gain was 62 percent bigger than the prior record rise of 10.75 dollars on June 6. "It's an unprecedented increase," said Antoine Halff, analyst at Newedge Group. He said the rally had been exaggerated by thin market liquidity because of the global credit crunch.

Another factor bolstering the October contract, which will deliver oil in the short term: US crude oil stockpiles are significantly lower after the production disruptions in the Gulf of Mexico from the hurricanes Gustav and Ike, Halff said.

"A considerable amount of Gulf of Mexico production remains offline after Hurricane Ike," said Mike Fitzpatrick at MF Global.

On Friday, oil prices jumped more than six dollars in New York and four dollars dollars in London on news of a broad US plan to bail out the sinking financial sector.

According to analysts, the 700-billion-dollar bailout, which requires approval by Congress, has eased fears that the world's largest economy was on the brink of collapse.

WTRG Economics analyst James Williams said: "The uncertainty over the bailout plan will probably dominate oil prices for most of the week. The results might be more palatable to the market if we didn't have to watch Congress make the sausage."

Oil prices also were underpinned Monday by a weakening dollar as investors worried that the US government bailout would severely burden the world's largest economy. A weaker dollar makes dollar-priced oil more attractive to buyers using stronger currencies. Oil and other commodities traditionally are seen as safer investments when the US currency weakens.

"Leverage is gone from the banking system and so will return back to the commodity exchanges as we should see a lot more cash come our way," said Phil Flynn, analyst at Alaron Trading.

Concerns about tight supply are "always lurking in the background," he said. The oil market also was focused on militant attacks against oil companies in Nigeria, the second-largest oil producer in Africa.

Posted by David Gergen.

AFP Report

Comments

[EF]

Well, by the time I read this, the price is at $108.04, so I guess it was probably speculative trades by financial firms. Still, it will be inevitable that in the end it will become more expensive in the future. Unless the world could come up with alternative source of energy and the alternative material for producing plastic.