Oil prices spiked more than $25 a barrel Monday (Sept. 22) — the biggest one-day price jump ever — as anxiety over the government’s $700 billion bailout plan, a weak dollar and an expiring crude contract ignited a dramatic rally.
The Associated Press reported that 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, a common occurrence when a contract is about to go off the board.
Still, the rally, which shattered crude’s previous one-day 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, was trading at $108.69, up $5.94, still a sharp gain.
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.
Oil’s sharp gains came as energy traders grappled with the implications of the government’s proposed $700 billion initiative to stem the U.S. financial crisis by absorbing billions of dollars of banks’ bad mortgage-related securities. Anxiety over the plan also sent stocks sharply lower Monday; the credit markets were calmer than they were last week, but still showing the effects of investors’ nervousness.
“They’re going to have to continue auctioning off a whole lot of Treasurys to finance these projects, so the dollar is going to suffer,” said Matt Zeman, head trader at LaSalle Futures in Chicago. “Right now it’s fear and anxiety driving people who want tangible assets.”