Crude Oil on the Raise (Again)

22 09 2008

Oil prices posted their biggest one-day gain on Monday, jumping more than $25 a barrel as investors dashed into commodities on concerns about the government’s plan to bail out the financial system.

After a wild last hour of trading, crude oil futures surged as high as $130 a barrel before finally settling at $120.92, a record jump of $16.37. In the last four days, oil prices have risen $29. The dollar also weakened on Monday, creating an incentive for commodities to serve as a currency hedge. Gold, silver and copper all posted strong gains.

The rise in oil led a general flight to the perceived safety of commodities as investors seemed to question whether the $700 billion plan to buy troubled mortgage assets would help spur the economy to a quicker rebound. President Bush urged Congress to pass the plan quickly, while Democrats were working on proposals that would include help to homeowners.

Monday’s volatility in the oil market was worsened by the fact that the October contract expired at the end of the day. Prices commonly rise when a contract is scheduled to expire as traders rush to cover positions. The New York Mercantile Exchange briefly halted electronic crude oil trading after prices breached the $10 daily limit, but trading resumed a short time later after the limit was increased to $20.

In recent weeks, oil prices had been falling from records reached this summer as slowing economic growth hurt oil consumption. The price of oil fell to a seven-month low when it hit $91.50 on Tuesday. It also traded under $100-a-barrel for the first time since March. But the relief appears to have been short-lived.

Anxiety about the government’s plan sent stocks sharply lower on Monday, and pushed the dollar down against other currencies. Traders said the dollar was weakening because the United States would have to increase its debt to finance its bailout plan.

The euro rose to $1.4781 in afternoon trading, up from $1.4470 on Friday.


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