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Oil prices posted a record one-day gain today, surging by over $25 per barrel as investors responded to news of a US government financial bail-out by dumping the dollar and aggressively buying back into commodities.
West Texas Intermediate crude oil futures for October delivery closed over $18 a barrel higher at $122.60 although the price briefly spiked as high as $130. In the last four days, oil prices have risen $31 a barrel.
The dramatic rise was exacerbated by the expiry of a benchmark monthly oil futures contract, which forced some oil traders to cover short positions.
It forced the New York Mercantile Exchange to briefly suspend electronic trading after crude prices leaped beyond a $10 daily limit. Trading quickly resumed and prices continued to rise, stoking fresh concerns about the impact of soaring oil prices on inflation.
Another contract, WTI for November delivery rose just $6.40 to $109.15, which analysts said reflected the fact that much of the increase was the result of a squeeze on short positions.
The Dow Jones slumped by 372.75 points to 11015.69. J.P. Morgan Chase fell 13 per cent and American Express dropped 8 per cent. The S&P 500 Index fell 48 points, led by a 7.8% slide in its financial sector.
In London the FTSE 100 has earlier ended off 75 points at 5,623.3, reversing some of its spectacular near 9 per cent rally on Friday. The dollar fell sharply, tumbling by 2 per cent against the euro to three-week lows, as the US bailout plan inflamed market worries over an escalating American budget deficit.
The soaring oil price reflected a wider rally across commodity markets as investors sought refuge from volatile markets and a currency hedge against a falling dollar. Wheat, corn, soybeans and gold all rose sharply as investors asked whether the US Treasury’s $700 billion plan to acquire toxic mortgage-backed assets from banks could trigger a more rapid economic rebound than previously expected, boosting demand.
Independent analyst John Hall also said the oil market remained jittery following OPEC's decision earlier this month to curb production by around 500,000 barrels per day as it moved closer towards a period of peak winter demand. He said the loss of some 995,000 barrels per day of production from the Gulf of Mexico following Hurricane Ike was also a factor.
Since touching an all-time record of $147 per barrel on July 11, oil prices had slipped sharply amid expectations that the weakening global economy would undermine oil consumption. On Tuesday it touched a seven-month low of $91.50 per barrel.