NEW YORK — Oil prices briefly spiked more than $25 a barrel Monday, shattering the record for the biggest one-day gain as unease about the government’s $700 billion bailout plan pummeled the dollar and spurred investors to buy safe assets. An expiring crude contract added fuel to the frenzied rally.
Light, sweet crude for October delivery jumped as much as $25.45 to $130 a barrel on the New York Mercantile Exchange before falling back to settle at $120.92, up $16.37. The contract expired at the end of the day, adding to the volatility as traders rushed to cover positions; the October price began accelerating sharply in the last hour of regular trading, commonplace when a contract is about to go off the board.
Still, the rally, which shattered crude’s previous one-day record price jump of $10.75, set June 6, showed the intensity of emotion in the market. The Nymex temporarily halted electronic crude-oil trading after prices breached the $10 daily trading limit. Trading resumed seconds later after the daily limit was increased.
The November crude contract, which became the front-month contract at the end of Monday’s session, settled at $109.37, up $6.62, still a sharp gain.
Phil Flynn, analyst and oil trader with Alaron Trading Corp. in Chicago, said the late-session surge in oil appeared to be the result of a large investment fund scrambling to cover short positions.
“When people sense that someone is short, it’s like blood on the streets. It just accelerates the rally,” Flynn said.
In other trading, gold prices shot up more than $44.30 to settle at $909 an ounce, and other haven commodities also rallied, underscoring investors’ uncertainly about the direction of the economy and their fear of more turmoil ahead.
“We’re off to the races again,” said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill. “There’s a renewed scramble for commodities because of a general weakness in the dollar.”
Crude has gained about $30 in a dramatic four-day rally that has at least temporarily halted oil’s steep two-month slide below $100. At this rate, crude is within striking distance of its all-time record of $147.27, reached in July.
The rally came as energy traders grappled with the implications of the government’s proposed initiative to stem the financial crisis by absorbing billions of dollars of banks’ bad mortgage-related securities.
Crude’s resurgence could halt steadily sliding pump prices. A gallon of regular unleaded gasoline shed 1.8 cents overnight to a national average of $3.739, according to auto club AAA, the Oil Price Information Service and Wright Express.
But there is still much uncertainty about what impact the U.S. rescue plan will have on energy demand. Oil’s run-up near $150 a barrel in July and a weak U.S. economy forced Americans to cut back on their driving and led businesses to scale down operations.
Though pump prices have eased from record levels above $4 a gallon, they remain expensive, and more softening in the economy would likely further curtail energy use in the world’s thirstiest consumer.
Given the dire economic outlook, some analysts questioned whether oil prices would keep rising.
