Oil prices rise amid uncertainty over US rescue package

25 September 2008
Oil prices posted their biggest one-day gain in history this week as traders scrambled to cover short positions in the market while uncertainty remained over a rescue package for the troubled US finance industry.

The October contract price for West Texas Intermediate (WTI) oil on the New York Mercantile Exchange surged by $25 on 22 September in intraday trading, hitting $130 before ending the day at $120.92, marking an eventual jump of $16.37.

The price of WTI oil in late morning trading in New York on 25 September was $105.93.

It marked a change from the previous week when oil hit a new seven-month low of $91.15 at the close of the market on 16 September, a drop of almost 40 per cent on the all-time record of $147.27 set exactly two months earlier.

Part of the reason for the surge was because traders were caught off guard by rising prices ahead of the expiration of the October contract. The US Commodity Futures Trading Commission subsequently subpoenaed several oil traders and launched a probe into the price spike.

The strong rebound in prices was also helped by the market taking a more positive view of economic prospects, as the US government tried to force through a $700bn rescue plan in the wake of panic in world credit markets.

Investment bank Barclays Capital says the initial price plunge towards $90 was driven by weak sentiment on broader macroeconomic trends.

“In our view, the move to $90 was premature, and the move back above $100 has been on the back of the oil market catching up with data and news flow,” says the bank. “For policymakers concerned with the balance between growth and inflation, the pace of the rebound might provide a suggestion that the oil price beast is not necessarily totally asleep yet.”

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